THIRD UNITED NATIONS CONFERENCE ON THE
LEAST DEVELOPED COUNTRIES
Brussels, 14-20 May 2001
Country presentation
by
THE GOVERNMENT OF YEMEN
NOTE
The views expressed in this document are those of the Government concerned. The
document is reproduced in the form and language in which it has been received. The
designations employed and the presentation of the material do not imply expression
of any opinion whatsoever on the part of the Secretariat of the United Nations
concerning the legal status of any country, territory, city or area, or its authorities, or
concerning the delimitation of its frontiers or boundaries.
Republic of Yemen
Ministry of Planning
and Development
Date: 23/12/2000
Action Program for the Development
of the Republic of Yemen 2001-2010
Prepared for
The Third United Nation Conference
On The Least Developed Countries
Brussels, May 2001
Prepared by
The National Preparatory Committee
Sana'a 2000
1
TABLE OF CONTENTS
Page
I. EXECUTIVE SUMMARY ................................................................................................................................ 4
II. PERFORMANCE IN THE 1990s....................................................................................................................... 9
Sectoral Indicators.......................................................................................................................................... 9
(a)
Structure of the Economy ................................................................................................................... 9
(b)
Agriculture ......................................................................................................................................... 11
(c)
Oil....................................................................................................................................................... 13
(d)
Refinery............................................................................................................................................. 14
(e)
Natural Gas ....................................................................................................................................... .14
(f)
Electricity and Water......................................................................................................................... 15
(g)
Financial............................................................................................................................................ .16
(h)
Tourism .............................................................................................................................................. 17
Social Indicators ........................................................................................................................................... .18
(a)
Population. ......................................................................................................................................... 18
(b)
Employment ....................................................................................................................................... 19
(c)
Vocational Training and Program .................................................................................................... 20
(d)
Education............................................................................................................................................ 20
(e)
Health Care............................................................................................................................... ...... 23
(f)
Social Safety Net Fund ................................................................ ................................................. 24
III. DOMESTIC OPPORTUNITIES AND CONSTRAINTS .............................................................................. 25
(a)
Peace and Stability........................................................................................................................... .25
(b)
Economic Infrastructures .................................................................................................................. 26
(c)
Policy Reform.................................................................................................................................... 27
(d)
Conductive Environment for Private Sector Development ............................................................ 32
(e)
Domestic Resource Mobilization..................................................................................................... 35
(f)
Human Resource Constraints............................................................................................................ 41
(g)
Industrial and technology development ........................................................................................... 44
IV. EXTERNAL OPPORTUNITIES AND CONSTRAINTS .............................................................................. 45
(a)
Official Development Assistance (ODA) ........................................................................................ 45
(b)
External Debt Burden........................................................................................................................ 46
(c)
Export Sector ..................................................................................................................................... 47
(d)
Foreign Direct Investment ................................................................................................................ 47
(e)
Vulnerability to Shocks.................................................................................................................... 48
V. THE PROGRAM OF ACTION FOR THE NEXT DECADE (2001-2010 ..................................................... 48
(a)
Fiscal Policy...................................................................................................................................... 50
(b)
Monetary Policy................................................................................................................................. 50
(c)
Foreign Trade Policy........................................................................................................................ 50
(d)
Agriculture Policy ............................................................................................................................. 50
(e)
Industrial Policy................................................................................................................................. 51
(f)
Tourism Policy................................................................................................................................... 52
(g)
Social Development .......................................................................................................................... 52
(h)
Investment for the Next Decade (2001-2010) ................................................................................. 53
2
GLOSSARY
NGOs
UNDP
WB
GDP
EFARP
FFYP
SFYP
LNG
PEC
IDA
CBY
NBY
LIBOR
YBRD
CPI
IMF
US$
YRls
ACT
GIA
FDI
FIRS
GER
DHS
ODA
SSN
SBAP
SFD
GNP
PGC
BOT
YESC
ESCA
SDR
BPD
NCSS N
CSO
NAPPE
PSDs
GOY
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NON GOVERMENTAL ORGANIZATIONS
UNITED. NATIONS DEVELOPMENT PROGRAM
WORLD BANK
GROSS DOMESTIC PRODUCT
ECONOMIC, FINANCI AL, ADMINISTRATIVE REFORM PROGRAM
FIRST- FIVE YEAR PLAN
SECOND FIVE- YEAR PLAN
LIQUEFIED NATURAL GAS
PUBLIC ELECTRICITY CORPORATION
INTERNATIONAL DEVELOPMENT AGENCY
CENTRAL BANK OF YEMEN
NATIONAL BANK OF YEMEN
LONDON INTER BANKING OFFICIAL RATE
YENIEN BANK FOR RECONSTRUCTION AND DEVELOPMENT
CONSUMER PRICE INDEX
INTERNATIONAL MONETARY FUND
UNITED STATE'S DOLLAR
YEMENI RIALs
ADEN CONTAINER TERMINAL
GENERAL INVESTMENT AUTHORITY
FOREIGN DIRECT INVESTMENT
FOREIGN INVESTMENT ADVISORY SERVICES
GROSS ENROLLMENT RATIOS
DEMOGRAPHIC HEALTH SURVEY
OVERSEAS DEVELOPMENT ASSISTANCE
SOCIAL SAFETY NET
STAND- BY- ARRANGEMENT PROGRAM
SOCIAL FUND FOR DEVELOPMENT
GROSS NATIONAL PRODUCT
PEOPLE'S GENERAL CONFERENCE
BUILD-OWN-TRANSFER
YEMEN EXPORT SUPREME COUNCIL
ECONOMIC AND SOCIAL COMMISSION FOR WEST ASIA
SPECIAL DRAWING RIGHT
BARRELS PER DAY
NATIONAL COMMITTEE FOR SOCIAL SAFETY NET
CENTRAL STATISTICS ORGANIZATION
NATIONAL ACTION PLAY FOR POVERTY ERADICATION
PROGRAM SUPPORT DOCUMENTS
GOVERNMENT OF YEMEN
3
EXECUTIVE SUMMARY
I. INTRODUCTION
The Republic of Yemen is one of the least developed countries having population about
18 million in 2000. There are major internal and external events that caused the economic and
the, social situation to suffer great shocks in the beginning of the 1990's. After the reunification
of the two parts (South & North) in May 1990, the Republic of Yemen suffered a series of
extraordinary circumstances that complicated the task-of economic performance. Those
circumstances included: (a) the Gulf War of 1990-1991 resulting in the expulsion of about one
million Yemeni expatriate workers from the Gulf States, whose remittances had contributed
significantly to the country's foreign exchange revenues (estimated yearly more than one billion
dollars); (b) an interruption of external financial assistance from the Gulf States and other
bilateral donors; (c) the disruption of regional trade relations, particularly the closure of
borders to Yemenis export markets.
These external shocks and the resulting economic hardships during 1990-1994 were
followed by internal conflict of 1994. By the end of this militant conflict, the country's
economy seemed to lie in ruins as it was burdened with tremendous challenges: large fiscal
deficits, a heavily indebted public sector, sharply accelerating inflation, a rapidly depreciating
local currency, repressed international trade, large-scale unemployment, inadequate human
resources and increasing; debt arrears, as well as declining confidence in the economy in
general.
II. GOVERNMENT'S RESPOND
The Government announced its own economic reform programme in late 199-1 in order
to respond to the country's deteriorating economic situation. More formally, a Five-Year
Programme of comprehensive economic reforms, Economic, Financial and Administrative
Reform Programme (EFARP), were initiated in 1995, with the primary purpose of tackling
inflation and stabilizing exchange rate deterioration. Tight fiscal policies were introduced in
order to reduce the budget deficits by decreasing public expenditure and increasing government
revenue. On the expenditure side, government subsidies on petroleum products, electricity,
communications, and basic consumer goods, such as wheat and barley, were reduced. To
increase revenues, the Government improved its tax collection procedures, and devalued the
official exchange rate, starting with customs evaluation, which generated additional revenues in
oil exports and customs revenue. It also raised the interest rates and the commercial banks
reserves requirement. This initial stage of economic reform took the form of an emergency cure
in which the focus was on stopping the deterioration of the economy. By the end of 1995, the
economy observed a 34 per cent reduction in the budget deficit and attained an 8.58 per cent
real annual growth in GDP.
Despite the EFARP's successes in 1996, which received worldwide attention, the state of
the economy was still characterized by large subsidies and heavy reliance on the public sector,
which was definitely not sustainable. Faced with insufficient financial resources to continue its
reform efforts, the Government entered negotiations with the International Monetary Fund
(INIF), the World Bank, the United Nations and other multilateral/bilateral donors for
assistance. The donor organizations have provided financial support, policy advice, and
technical assistance to the Government's reform strategy, aimed at putting the economy on the
path to sustainable and steadily-accelerating real economic growth, attaining financial
stabilization, and strengthening the country's external position. On March 20, 1996, the INIF
4
approved a 15-month Stand-by Agreement totalling SDR 132.4 million (US$ 193 million),
linked to a two-phase reform strategy, macroeconomic stabilization and structural
transformation. Shortly afterwards, the World Bank agreed to lend the Government USS 80
million in support the reforms in trade policy, privatization, and the phasing out of price
controls.
Economic reform programmes that road started in 1995 were continued in the following
years. In 1996, the primary emphasis was on further strengthening the domestic economy. By
the end of the year, such efforts had already begun to yield substantial positive results: the
inflation rate declined to 12 per cent, the exchange rate stabilized, and the country's fiscal and
balance of payment positions began to show signs of improvement. The Government prepared
its 1997 programme as an extension of what had been undertaken in 1995 and 1996.
Nonetheless, 1997 marked an important turning point after the Parliament approved the First
Five-Year Plan (FFYP) 1996-2000 on December 30,1996. The plan, prepared with the direct
financial and technical assistance of the United Nations Development Programme (UNDP), was
complementary with the EFARP policies and set forth a number of economic and social
development goals and policy implementation strategies along with the time frame for their
implementation. While the economic reform had started in 1995, the FFYP 1996-2000
advanced its efforts by prioritizing project objectives necessary to achieve the country's overall
socio-economic development goals. These objectives included the acceleration of the economic
growth rate, employment generation, improvement of the education and health sectors, and
introduction, of protective measures for environmental and water resources.
The country held its second national parliamentary elections on April 27, 1997. The
election results were considered largely successful and deemed free and fair by the
international community, which sent a strong signal that prospects for internal political stability
were positive. The People's General Conference won two-thirds of the seats and shortly
thereafter formed its new government. The international donor community, both multilateral
and bilateral, responded favourably to the election results, rewarding the country with various
economic assistance pledges to the end of the century. Moreover, re-scheduling the country's
debts on Naples Terms at the Paris Club in late 1996 appeared to have set the stage for rescheduling its bilateral debts to Russia, which is the country's major creditors.
Shortly after the election, the new Government was formed: and began to take its
economic reform to the next phase. In October 1997; the IMF approved a loan and credit
package, under the Enhanced Structural Adjustment Facility and Extended Fund Facility
(ESA/EFF), over a three-year period up to the year 2000, amounting to SDR 370.6 million
(USA 512 million), in order to support the Government's economic programme. Meanwhile, the
Government continue to apply tight fiscal policies aimed at decreasing budget deficits to
around 3% of GDP. As stability started to be felt in key macroeconomic indicators by the latter
half of 1997, the economy seemed read: for more fundamental economic reform. Thus, the
Government also began to focus on structural adjustment components such as public
investment in infrastructure, direct and indirect tax reforms, trade liberalization, financial
sector reforms and privatization. All these in turn, require ch anges in the legal framework to
create an environment more favourable to private sector and an overhaul of the bureaucracy by
reducing government paperwork and personnel. Furthermore, social protection during the
economic adjustment period has been also an important component in the reform programme
for development.
III. DOMESTIC DEVELOPMENT CONSTRAINTS
Despite the relative achievements of the Reform Program that have been realized during
the period (1995-2000), the economic and social indicators continue to provide an
unsatisfactory profile of the economic performance and the living conditions of the population:
5
1. The GDP Per Capita is $ 349 in 1999 and the unemployment rate is estimated to range
between 25- 35 per cent of the labour force.
2. Population
The population growth rate is 3.5% in 1999, which creates great pressure's that
undermine the achievements of the development programs. It also creates . pressures on sources
of natural wealth and causes several environment problems. Hence, the significant depletion of
underground water and the decline of its quality are considered normal consequences _of the
population increase and of the diverse activities emanating from it. Moreover, the population
density has left its prints on land through the excessive use that affects its quality. In rural
areas, the depletion of plant coverage due to over herding and woodcutting for Fire or
construction use, and in quantities that exceed the planting rate creates a hazardous
environment situation.
3. Poverty
Poverty in the country almost doubled between 1992 and 1998, with the number of
households below the "food poverty line" rising from 9% to 17% respectively according to the
Household Budget Survey. This is attributable to the depreciation of the local currency, subsidy
elimination, and other external factors (influx of returnees and refugees, suspension of foreign
aid, impact of regional conflicts). By adding food, clothes, housing, education, health and
transport into an "upper poverty line", the percentage of households living in poverty rose from
19 to 33 over the same period. Hence, poverty is becoming more widespread amongst the l S
million people who live in the country's urban and rural areas.
4. Education
Even though literacy rates have improves! over the years, illiteracy is still very high in
the country. There are differences in rural and urban illiteracy rates (64 ° ,'o vs. 34 %
respectively) as will as major differences between genders. These gender discrepancies are also
reflected in the actual school enrolment rates. Furthermore, these are significant, variations
among governorates when it comes to gross-enrolment ratios (GER) for basic and secondary
education. 45 % of pupils enrolled in the first grade do not complete the basic education cycle,
and the drop-out is greater in secondary schools.
5. Health
Yemen has experienced a relative improvement of health services and life expectancy has
increased over the recent years. In 1997, the overall life- expectancy rate increased from 57 to
58 years.
Even though, the infant mortality (estimated at 81 death per 1000 birth) has declined
considerably in the last decade, it is still higher than the low - income country average of 64.
The major causes of morbidity and mortality in Yemen are communicable diseases, hence
preventable.
The delivery of health services is hampered by the fact that about 77% of the population
lives in highly scattered communities, which in addition often cannot afford commuting costs
to health care facilities. Only 45% of the population has access to health services (25% in rural
areas). Still about 60 per cent of the population has no access to safe water and only 24 per cent
has access to sanitation and 35 per cent to electricity..
Over the past two years, approximately 150 private clinics have been opened. Emergency
medical services practically do not exist, as there are no public ambulances services. Also the
population per doctor is more than 5000 people per doctor. The expenditure on health is 1.24 %
of GUI' in 1999.
6
IV. PROSPECTS FOR THE NEXT DECADE (2000-2010)
The economic prospects for the next decade looks better than those of the previous decade as
the country settled its disruptive internal and external problems of the 1990s. The settlement of
Yemen's border dispute with its all neighbours, particularly with Saudi Arabia has certainly resulted in normalizing and strengthening the relations between Yemen and all its
neighbours.
The Program of Action is derived from both the SFYP (2001-2005) and the Yemen
Vision 2025, which both aim at moving Yemen from 'low-income group to middle-income
group with diversified economy and social development. The whole economy is expected to
grow at a rate between 6.5 to 7.5 per cent during the next 10 years. This entails raising Per
Capita income from $349 in 1999 to $700 by 2005 and $1050 by 2010, which means, it is being
doubled every five years. Meanwhile, Per Capita growth is accompanied by diverstation of the
economy and development of the social structure.
The mission implied by Yemen Vision 2025 is to provide Yemeni citizens better standard
of living and higher economic and social welfare, comprehensively and equitably.
The mission is to be accomplished through a comprehensive development strategy
relying mainly on four key factors stated briefly as follows:
1.
Development and upgrading of human power as the dynamic factor for growth and
information technology economy. Thereby, establishing human resource development as
the cornerstone for economic and social development.
2.
Diversification of economic stature in order of mooing away from high dependency on
oil production and export to densification of income generation and employment creation
through increasing agricultural, industrial, fisheries and tourism shares in gross domestic
product.
3.
Improving investment attractiveness and competitiveness of the economy; in order to be
able to mobilize domestic private investments and attract foreign direct investments and
technologies, thereby, integrating with international economy on the bases of
competitiveness and equity.
4.
Export led economy. In line with the new economic direction towards openness and
liberal economic and trade policies, it is essential to encourage export oriented
investments and economic activities.
Objectives of the Program of Action
According to the comprehensive development strategies and objectives of both the SFYP
(2001-2005) and the Yemen Vision 2025, the main objective of the Program of Action for the
next ten years can be specified as follows:
a.
Achieving an annual rate of growth of real gross domestic product at a rate between 6.57.5 per cent in order to be able to double Per Capita income every five years.
b.
Reducing poverty at a rapid pace so that poverty percentage could be reduced from the
present level of 33% to 15% by the year 2010.
c.
Encouraging massive investments in all sectors of the economy, especially, those
characterized by labour intensive technology, in order to create as much employment as
possible, thereby, reducing unemployment rate ftbf6"the present level of about 35% to
10° ,% by the year 2010.
d.
Raising sectoral annual rate of growth within the range of 8% to 10% in order to raise the
aggregate economic growth rate, create employment, consequently, approaching
economic diversification.
7
e.
Preparing the economy to effectively and competitively integrates to the world economy
through strengthening economic integration locally, regionally, and internationally.
These objectives will be carrying out through a set of macro and sectoral policies, which
aim to generally continue the efforts of the structural reforms already initiated under the IN1f's
Stand-By-Arrangement (SBA) by broadening and deepening them.
Thus the government's effort in the coming years will continue to focus on: tax and
expenditure policies; revenue administration; the civil service; pension funds; subsidy
elimination; customs administration; budget management; indirect monetary control and
monetary management; the banking system; trade and tariff. policies; the public enterprise sector
largely through rapid privatization; and the economic environment.
The achievement of' the Program of Action objectives requires a lot of resources, wide
capabilities, and a long period of time. However, it is possible to achieve some. of these
objectives on the short and the medium- term. To do that, a lot of efforts and procedures have
to be taken by the Government and the international community.
The government is seeking to expand the role of the private sector by reducing the
crowding - out effect of a larger and inefficient government.
Also, as a complementary move with the EFARP policies, the Second Five-YearDevelopment-Plan (SFYDP) 2001-2005 preparation is now underway, aiming at the
achievement of certain social and economic objectives, including accelerating the economic
growth rate of the
whole economy at a rate between 6.5-5.5 per cent during the period of 2001-2005,
reducing the high population growth rate, generating employment, reducing poverty, improving
education and health and introducing protective measures for the environment and water
resources. The NGOs are also working with the government hand-in-hand and rendering
services even in the remote areas, the civil society is increasingly becoming active and has beIn participated in raising awareness about environmental promotion, civil rights and about
rights of the underprivileged women and children, and above all Governance in the country is
increasingly becoming transparent.
The total expected investments during 2001 to 2010 is estimated to be $24199.5 Millions,
about $ 14199.5 Millions is expected to be financed from Domestic Saving, $ 5579.5 Millions
from Foreign Direct Investment (FDI) and the rest $4427.5 Millions is expected to be financed
from foreign resources as; grants, soft loans, and concessional multilateral loans.
The Government of Yemen considers foreign assistance of the INIF and the World Bank,
and al! other donors as an important factor in helping and in fulfilling the gap between the
limited available resources and the required resources for achieving the targeted economic
growth and to promote sustainable human development in the next decade (2000-2010).
8
I. PERFORMANCE IN THE 1990s
There are major internal and external events that caused the economic and social situation
of Yemen to suffer great shocks at the beginning of the 1990s. First came the Gulf War of
1990, which brought in its wake the return of about one million returnees from the Gulf States
(particularly, from Saudi Arabia and Kuwait). The remittances from these returnees (estimated
yearly at $1 billion) ceased, and most of the returnees became unemployed and poor. In
addition, some donors stopped their large aid programs in Yemeni. Second the internal militant
conflict followed in 1994, taking resources away from social and economic development. The
civil conflict also damaged much of the economic and social infrastructures of the country. The
outcomes were: balance of payments deficit, high inflation, large-scale unemployment and
increasing international debt. These all led the government to adopt a package of structural
adjustment reforms with the help of the INIF and the World Bank. These macro economic
reforms required large cutbacks in social services welfare and removal of subsidies for basic
foods. The results of this program, however, have been very successful. Real non - oil GDP
grew by about 5% in 1997 after a stagnation in the early 1990s. Furthermore, after having
experienced high rates of CPI inflation (71 percent in 1994, post conflict), CPI inflation has
been stable at around 26 percent in the last years. Other outcomes are the decrease of the deficit
to 2.4 percent of GDP in 1997 from 16.3 percent in 1994. The exchange rate stabilized and the
balance of payments became stronger.
The success in macroeconomic stabilization has regained private sector confidence in the
economy. Yet, Yemen economic development experience has not been smooth due to sociopolitical and economic complexities. To raise the standard of living and improve the quality of
life of the citizens based on the success in macroeconomic management, the Government
prepared the FFYP Sect-oral Strategy to maximize utilization of avail, bee resources and benefit
from sector-wise relative advantages. First. since the mining and quarry sector plays a strategic
role in the country's development, providing an important source of hard currency earnings and
Financial resources to government investment expenditures, the FFYP emphasized two main
objectives in order to increase its oil and gas revenue: (a) to expand extraction activities to
ensure a rise in the oil and gas production or, at least, to maintain the current level; and (b) to
improve the contract conditions with private oil companies operating in the fields. Second, the
manufactu ring sector was to be developed in order to exploit its natural capacity to absorb
modern technology and know-how, and the high potential to employ and train workers. Third,
the Government recognized that the prospect of agricultural development was increasingly
related to water resources availability. Thus, establishing water resources management and
policies took strategic importance and priorities in the FFYP. In addition, excellent
opportunities for fishing and fish processing for exports were realized.
Sectoral Indicators
(a) Structure of the Economy
In 1999, the GDP of the country consisted of industries, government services, and other
private, non-profit services. The weight of government services in the total GDP had increased
steadily from 15.60 per cent in 1990 to 24.3 per cent in 1999.
As shown in table (1), the traditional economic base of the country is agriculture,
forestry, and fishing, which contribute around 23 per cent of the country's total GDP. As a
result of oil discovery in 1934, mining and quarrying became another important industry. In
particular, with an unexpected output increase in crude oil extraction in 1994, and high prices
of crude oil in the recent years before the end of 1997, it grew to be the second largest industry
in economy, contributing 16 per cent of the GDP in 1999.
9
Although the manufacturing sector accounted for only 8.2 per cent of GDP in 1999, its
potential role of providing job opportunities and thus, substantially contributing to the
domestic economy, is apparent.
TABLE (1)
STRUCTURE OF CDP AT PRODUCERS PRICES, BY ECONOMIC ACTIVITY
(AT CONSTANT PRICES FOR 1990-1999: %)
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
Agriculture, forestry, and fishing
24.4
22.2
24.3
24.3
23.1
22.3
21.4
21.6
23.4
22.6
Mining and quarrying
13.7
12.7
9.9
9.9
13.9
15.0
16.1
16.0
15.6
16.2
9.4
9.5
9.2
9.4
8.7
9.7
9.2
8.6
8.5
8.2
Manufacturing
Electricity, water, and gas
1.2
1.3
1.2
1.2
1.1
1.1
1.1
1.1
1.1
1.1
Construction
2.7
2.9
3.1
3.1
2.5
2.7
3.3
3.9
3.8
3.7
Whole and retail trade
7.3
7.6
7.1
7.2
6.2
6.4
6.6
6.5
6.7
6.9
14.9
13.8
14.9
12.3
9.8
8.6
6.9
7.6
7.7
7.8
Financial institutions and real estate
8.4
8.5
7.7
7.5
7.9
7.2
6.6
6.4
7.2
7.2
Community, social, and personal
services
1.2
1.3
1.2
1.2
1.2
1.1
1.2
1.3
1.1
1.2
15.6
18.2
20.3
22.1
24.5
24.9
25.4
25.3
24.4
24.8
Producers of private, non- profit
services of household
0.2
0.2
0.1
0.2
0.2
0.l
0.2
0.2
0.2
0.2
Import duties
3.2
4.6
3.1
3.4
3.3
2.9
3.2
2.9
2.2
2.1
Less: imputed bank Services charge
2.1
2.5
1. 1
2.0
2.2
1.9
1.2
1.1
1.8
1.7
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Transport, storage, and communications
Producers of government services
GDP at market prices
(1) Real GDP
The economy appears to have responded positively to the economic reform programme.
Table (2) below shows that its real GDP registered an impressive annual growth rate of 10.91
per cent in 199 Although the economy's performance dropped slightly in the following years,
partially due to the Government's contractional fiscal and monetary policies, it still achieved
over 4 per cent growth rates both 1993 and 1999. The macroeconomic objectives for 1996-1997
had included real GDP Growth of 2.5 per cent in 1996 and 5 per cent in 1997. The actual GDP
growth rates surpassed these target However, because of the sharp decline in oil revenue
following a plunge in world oil prices since la 1997 and the curtailment in government
expenditure as a consequence', the country's real GDP growth slowed down in 1999 to 4.25 per
cent (table 2).
TABLE (2)
REAL ECONOMIC GROWTH RATE, 1991-1999
(In percentage)
Real GDP growth rate
1991
1992
1993
1994
1995
1996
1997*
1998**
1999**
1.90
8.36
4.07
2.13
10.91
5.91
8.12
4.91
4.25
* Provisional Actual
** Provisional Data
10
(2) Non-oil GDP
Most industries registered negative growth rates during the 1994 militant conflict,
however they achieved positive rates in 1995. Therefore, to a certain degree, expansion of the
non-oil sector industries is considered to have-rebounded to normality. Nevertheless, their
growth was respectable as a whole in '1997'and 1998, registering rates of 8.2 percent and 5.3
per cent, respectively (table 3). In order to achieve real non-oil GDP growth of six percent. a
year on average toward year 2000, the programme for calendar year 1996 aimed at attaining
three per cent real growth in the non-oil sectors. The 1996 results show that this goal was
successfully met. In addition, the non-oil sectors were expected to grow at 5.92 per cent in
1997, out-pacing the overall GDP growth rate in the same year. Thus, the 1997 programme's
goal to achieve 5.5 per cent growth in non-oil GDP was also met. However, the 1998
performance was not estimated to have been as high, whereas non-oil GDP is still considered to
have grown at a faster rate of 3.59 per cent than the total GDP.
TABLE (3)
REAL NON-OIL GDP GROWTH RATE, 1991-1999
(In percentage)
1991
1992
1993
1994
1995
1996
1997*
1998**
1999**
3.1
11.8
4.1
(2.3)
9.5
4.6
8.2
5.3
3.6
Non-oil GDP growth
rate
* Provisional Actual
** Provisional Data
() Indicates negative
Under the Government's initiatives to encourage private sector participation, industries as
a whole drew faster than the overall GDP since 1995. As seen in table (4) below, the total
industry grew at 10.58, 8.57 and 8.22 per cent in 1995,1997 and in 1998 respectively. These
were higher than the GDP growth rates; 9.5, 8.2 and 5.3 percent in 1995, 1997 and in 1998
(table 2).
TABLE (4)
ANNUAL REAL GROWTH RATES OF SECTORS, 1991-1999
(In percentage)
1991
1992
Agriculture, forestry & fishing
(7.42)
19.09
4.44
Mining and quarrying
(5.57)
(15.42)
3.60
4.44
13.93
Construction
Wholesale and retail trade
Manufacturing
Electricity, water & gas
Transport, storage,& commuc..
1993
1994
1995
1996
1997*
1998**
1999**
(3.41)
6.92
1.86
8.77
13.73
0.88
4.24
42.65
19.90
13.54
7.46
2.49
7.81
6.01
(5.34)
23.75
0.61
1.05
3.76
.68
1.86
1.32
(10.29)
13.60
12.25
1.97
2.38
7.21
8.07
17.00
1.73
(17.17)
23.14
28.18
28.43
1.44
0.73
4.82
1.67
6.35
(13.13)
15.45
8.19
6.63
8.19
7.36
(5.97)
17.45
(13.89)
(19.20)
(2.82)
(14.01)
18.27
6.26
5.59
Financial institutions and
real estate
3.73
(2.36)
3.81
5.61
0.71
(2.68)
4.67
17.91
4.47
Community, social, and personal
services
5.38
3.35
3.06
3.94
(1.04)
12.38
4.20
5.78
5.38
10.58
3.63
Total of industries
(2.42)
7.00
1.11
(0.76)
8.57
8.22
3.87
* Provisional Actual.
** Provisional Data
() Indicates negative
(b) Agriculture
In the FFYP, it was initially expected that the agricultural sector would grow at an average
annual rate of about 7 per cent, the manufacturing industries by 8 per cent annually, and other
11
sectors at 8.2 per cent. Recent performance of the agricultural sector, which is one of the most
important sectors in the country, has been exceeded the 7 per cent of the FFYP (8.77, 13.73 per
cent in 1977 and in 1998 respectively).
Prior to reunification, the Government banned the import. of vegetables, fruit, and some
other agricultural produce in 1989 in order to encourage the growth of the country's agricultural
sector. As a result, the country became flooded with cheap fruits and vegetables. Yet, the
country's export markets were slammed shut due to the consequence of the Gulf crisis. Some
produce remained unharvested, prompting rural people to migrate to the cities as the export of
their produce became extremely difficult. Nevertheless, agriculture continues to be the largest
sector, with agriculture and forestry combined contributed close to 23 per cent of the country's
GDP (table 1). The proportion of the population engaged in agriculture is still dominant,
estimated to be about 50 per cent in the late 1990s; most of these workers are women, children,
and the aced.
The arable land under cultivation was estimated to be around one million hectares in
1995, representing less than two per cent of the total area of the country. The overall growth in
agricultural production has not been enough to meet the domestic demand for food; resulting in
a wide gap between consumption and production. For example, output from the agricultural
sector increased only by 1.72 per cent in 1996 compared to that in 1995. The annual growth
rate, improved slightly in 1997 to 2.93 per cent. Yet, it was the second-smallest growth rate,
after the financial institutions and real estate, among all the industries, and insufficient to keep
LIP with the country's rapid population growth rate. Consequently, at the end of 1996, selfsufficiency in grain was only 35 to 40 per cent, and 50 to 60 per cent for dairy products.
Meanwhile, food imports have grown rapidly, accounting for more than 33 per cent of total
imports in the same year.
The country grows cereals, cotton, fruits, vegetables, tobacco, and coffee. Table (5)
shows that cereal production has been declining during the past six years, except for a small
increase of 1.19 per cen t in 1995 and 27.94 per cent in 1998. The growth patterns of vegetables
-and cash crops, such as cotton, sesame, tobacco, and coffee, are similar; their production
growth has been steady, except for 1994 when they both registered negative growth. Fodder has
been growing positively since unification, even in 1994. It increased at impressive rates of
20.16 in 1997 and 26.5 in 1993.
The gap between, local food production and consumption is the greatest challenge to the
country. The agricultural sector currently has the capacity to supply population with most of
their demand For vegetables and fruit, but meets only less than half the domestic demand for
cereals. In order to reduce reliance on imported goods and also to relieve the pressure on the
limited resources such as water and farmland, the Government realized that taking proper
initiatives to decrease population growth and increase the levels of education for efficient
agricultural production is necessary.
TABLE (5)
PRODUCTION OF AGRICULTURAL CROPS, 1992-1999
1992
1993
1994
1995
1996
1997
1998
1999
Cereals (tons)
Growth rate (percent)
836905
910196
2.63
370266
(4.39)
830588
1.19
731169
(16.97)
712278
(2.58)
911304
27.94
757932
(16.83)
Vegetables (tons)
680482
730896
645769
668800
703244
717631
747131
759821
7.41
(11.65)
3.57
5.15
2.05
4.l1
l.7
815608
856388
861534
877957
907650
1090639
1380571
1399477
5.00
0.60
1.91
3.38
20.16
26.53
1.37
40351
42431
38852
43460
50174
56644
63784
65010
5.15
(8.43)
11.86
15.45
12.90
12.61
1.92
335684
362858
360749
402160
391278
469352
554785
57873
Growth rate (per cent)
Fodder (tons)
Growth rate (per cent)
Cash crop (tons)
Growth rate (per cent)
Fruit (tons)
12
8.10
Growth rate (per cent)
(0.58)
11.48
(2.71)
19.95
18.20
(89.57)
( ) Indicates negative.
(c) Oil
Commercial quantities of oil were discovered in the Marib oil field in 1984. Since then,
three major oil export pipelines have been constructed to provide the necessary flexibility for
the operating companies in case of further discoveries. After reunification, output continued to
increase at a rapid rate due to the coming on stream of new oil fields. The major oil producing
areas now include Masila, Marib, and Jannah.
As shown below in table (6) below, the value of crude oil exports constitutes most of the
country's revenue from commodity exports. When international oil prices escalated in the
winter and spring of 1996-1996, the country earned windfall oil profits, as did other oil
exporting countries. Consequently, the country's mining and quarrying sector experienced a
rapid growth at 19.90 and 13.64 per cent for 1996 and 1996 respectively, after that it slowed
down to 7.81 in 1999 (table 4).
TABLE (6)
CRUDE OIL EXPORTS AS A PERCENTAGE IN THE TOTAL EXPORTS, 1991-1993
1991
1992
1993
1994
1995
1996
1997
1998
Crude oil export (million Rials)
7092
2921
3423
9973
74907
242 171
304835
58197
Total exports (million Rials)
7685
3951
4495
11216
79434
251830
320293
61677
92.28%
73.93%
76.15%
88.92%
94.30%
96.16%
95.17%
94.36%
Crude oil exports/total exports
The Government's share of oil exports has more than doubled in this decade, rising from
66,3S5 barrels per day (bpd) in 1990 to 145,205 bpd in 1997. Oil revenue not only constitutes
the major source of hard currency for the country, but also its share in the government's budget
revenue has been significant, at around 70 per cent.
The oil output provides the country's primary source of income, leading to its economic
growth. The total output had reached the highest level in its oil production history, at 420,000
bpd, at the end of 1996. However, output from the two mature fields in Marib and Masila seems
to have peaked and then begun to fall. Total crude oil production was estimated 390,000 bpd at
the end of 1998. New fields are tinder construction and will be operational soon, yielding
additional oil. However, they are smaller fields and may only replace anticipated declining
output from the older fields. Thus, the total output is expected to be around 400,000-460,000
bpd.
The country's proven oil reserves are estim ated at four billion barrels as of January 1999,
one billion barrels of which are recoverable. They will be completely depleted in 29 years if
crude oil production remains at the current level. The Ministry of Oil and Mineral Resources
has taken the initiative of reevaluating the country's geological data for further exploitation
potential by actively inviting more private oil companies to participate in the efforts through
promotional offers.
Domestic consumption of petroleum products has been rising stead ily, increasing from
49,687 bpd in 1991 to 66,803 bpd in 1997, except in 199-1 during the civil strife (table 7). The
combined consumption of oil and gas covers about a half of the country's domestic energy
demand, while wood fuel, the primary source of household energy in rural areas, covers the
other half. Given the country's high rate of population growth (3.6%), energy demand is
13
expected to double in next ten years. The Government's strategy is to encourage greater
household use of gas thereby stemming deforestation and freeing up higher value oil products
for export.
TABLE .(7)
DOMESTIC CONSUMPTION OF PETROLEUM PRODUCTS, 1991-1997
Barrels per day
Gasoline
Diesel
Kerosene
Fuel oil
Total
Percentage change
1991
20029
17009
2467
10182
49687
1992
21601
17748
2560
12469
54378
4993
23652
17138
2779
14017
57586
1994
22949
17633
2532
10146
53260
1995
25138
18676
2961
13926
60701
1996
23968
20239
2913
15661
62781
1997
24506
21909
4661
15727
66803
9.4%
5.9%
(7.5%)
14.0%
3.4%
6.4%
( ) indicates negative.
(d) Refining
The country has a major refinery at Aden and a smaller unit, with a capacity of 10,000
bpd, at Marib. Both refineries are managed by the Yemen Refining Company, which is
controlled by the State owned General Corporation for Oil and Mineral Resources. Due to the
significant damage incurred during the 1994 militant strife, the capacity of the Aden Refinery
Plant declined from its design capacity of 170,000 bpd to the actual production level of 100,000
bpd. Rehabilitation and modernization of Aden Refinery is one of the projects specified in the
country's FFYP, aimed at modernizing the ageing existing units and setting up new units to
rationalize energy inputs and improve the product qualities. A two-year plan to renovate the
facility and raise its capacity to 150,000 bpd gained Iranian support in February 1996. In 1997,
the output from the Aden Refinery Company registered a 10.8 per cent increase.
(e) Natural gas
With oil exports being the dominant share in total exports of the country, export revenue
had bee highly dependent on oil prices. To reduce such heavy dependence on one sector, which
exposes the economy to a vulnerable situation, and to generate needed employment
opportunities for the population development of the non-oil sectors and export diversification is
among the country's top economy priorities in the next decade (2001-2010).
Since natural gas was discovered in 1984 together with oil, commercially recoverable
reserves in the country have been rising. With estimated natural gas reserves of 16.9 trillion
cubic feet, the counts has considerable potential as a gas producer and exporter in the future.
The bulk of these reserves are concentrated in the fields operated by the Yemen
Exploration and Production Company. However, few facilities had been installed for recovery,
resulting in t1 production level of only 540 million cubic meters.
In 1995, the Government began negotiations for gas development agreement with the
French company, TOTAL; with the intention of developing natural gas resources for domestic
use and exports as Liquefied Natural Gas (LNG). In early 1996, the Ministry of Oil and Mineral
Resource signed LNG joint venture between TOTAL and tae Yemen General Gas Corporation.
The joint venture is the largest single energy project. It aims at developing natural gas from
Marib and Al-Jaw fields, transporting it via pipeline to a natural gas processing plant and an
export terminal -on the country southern coast, and exporting 5.2 million tons of LNG per year
over 25 years beginning in 2001.
14
Export markets for LNG were expected to be found in Europe, where gas is a favoured
source energy on environmental grounds, and in South-East Asia, for its petrochemical
industries.
In January 1997, the venture parties agreed to include two American companies, Hunt Oil
a Exxon, and the Yukong Group of South Korea as partners in the project. Recently, Hyundai
of Sot Korea has also joined this consortium as the newest partner, while TOTAL remains the
managing company of the project. A total of 13 trillion cubic feet was allocated to this project,
with a 15 per ct share to the Government and the remaining 85 per cent share to the foreign
companies.
The total investment in the oil and gas sector over the five-year period of 1996-2000 was
YRIs 817,000 million (US$ 6,285 million). Foreign investment is almost YRIs 390,000 million
(US$ 3,000 million), of which 75 per cent is directed to the LNG project alone. The partners
have begun financing arrangements. The Government anticipates earning. over US$ 600
million from gas exports in the early stages.
(f) Electricity and Water
Despite the fact that the power sector plays an essential role in the country's economic
development, the electricity output is yet inadequate for a country having about 18 million
people. The State-owned Public Electricity Corporation (PEC) supplies ninety per cent of all
electricity in the country. Its maximum electricity capacity is registered as 609 megawatts, but
actual output level is between 350-400 megawatts.
Moreover, electricity only reaches 25 to 30 per cent of the population, as many of the
rural and mountainous parts of the country are not connected to the national transmission and
distribution grid due to the high cost. Power generation in remote areas beyond PEC's Network
is currently supplied mostly by diesel engines. Thus, the Government's General Authority for
Rural Electrification and Water Supply is investing in small electricity projects in rural areas,
with an element of community participation.
In 1995, under the growing demand for electricity at a rapid 15 per cent annual rate, the
Ministry of Electricity and Water publicly announced its support for private power generation,
seeking to attract private sector investment. In October 1996, the PEC signed a $US 20 million
Build-Own-Transfer (BOT) contract, the first of its kind in the country, offering up to 1.4
gigawatts of new capacity over a ten -year period.
In addition, there remains room for improvement in electrical power generation when
discoveries of uranium, radium, and various radio-active materials are to be exploited.
Water and sewage services are even less adequate and the ROY is considered it as one of
the most water-scarce countries in the world. For example, the 400,000 residents of Taiz, the
country's third-largest city, receive public water once every 30 to 40 days. Also, in Sana'a, raw
sewage runs in to major streets in some parts of the city, in addition, to a shortage of water
supply. During the period of 1990-1996, about 39 per cent of residents in the country as a
whole did not have access to safe water.
There is increasing demand for water from the rapidly growing population and the
expanding agricultural sector. The existing water supply is being depleted and groundwater in
the highlands is being pumped out at such a rate that large parts of the rural economy could
disappear in the coming generation.
The total annual renewable water resources are estimated at 2.1 billion cubic meters.
With a population of about 18 million, not more than 130 cubic meters of water is available per
person each year. This figure is considerably lower than the average of 1,250 cubic meters in
the Middle Eastern and North African region and the worldwide average of 7,550 cubic meters.
The country will face a severe water supply crisis in the near future.
15
The conditions of water supply and sanitation in rural area is particularly poor; less than
twenty per cent of rural inhabitants have access to potable water and even fewer have access to
safe sanitation, as compared to the urban areas where eighty per cent and sixty per cent of
inhabitants have access to potable water and safe sanitation, respectively. Given that about
seventy per cent of the total population lives in rural areas, the magnitude of inadequate water
supplies in the country as a whole is easily understood to be severe. In addition, water
shortages have constrained the country's potential for urban industrial development.
Rapid population growth has drastically increasing demands on the already stretched
water, resources; and the lack of a_ synchronized control management mechanism to mitigate
the problem has not helped the country to find a real solution. For example, modern drilling
and water pumping methods provided to farmers, subsidized electricity supply, and cheap
diesel local prices lesser that the prevailing international prices have all contributed to over
pumping of groundwater. Therefore the Government is aiming to remove all Price distortions
and unsustainable incentives that hag resulted in the over pumping.
In addition, water supply costs are rising sharply as water is found at a deep level.
Pumping groundwater must be discouraged by changes in the relative prices, which correctly
reflects the value of scarce resources. Such pricing policies include introducing higher prices
for diesel, levying higher tariffs and taxes on pumping equipment, eliminating credit subsidies
for pumps, an removing existing incentives to the production of water-intensive products. It is
also in the Government's agenda to privatize water and sewage services in order to manage this
vital, start resource properly and more efficiently.
The Government has been involved in several projects to alleviate the water problem. In
1991 the World Bank financed Taiz Water Supply Pilot Project obtained in Taiz amounting for
USS 10 million. It aimed at mitigating the immediate water shortage in Taiz by doubling the
water supp by 1997 and also identifying new water sources to meet projected demand to the
end of year 200 The Project's objectives are: (a) to rehabilitate and construct demand-based
community-manage rural water supply schemes; (b) to provide materials for the construction,
by beneficiaries, of safe waste-water and sewage disposal and safe drinking water storage
facilities; and (c) to convey heal and hygiene messages regarding water handling and safe
sanitation. Overall IDA-financed project are estimated to US$ 406 million, to support the
Government in developing comprehensive wa1 strategy and action plan; setting up a National
Water Resource Au thority; increasing agriculture production; and protecting and conserving
the environment.
(g) Financial
The banking system in the country consists of the Central Bank of Yemen (CBY), ten
commerce banks, and three specialized banks for the promotion of agriculture, industry, and
housing, and the Islamic banks. As of the end of June 1999, one of the commercial banks, the
National Bank of Yemen (NBY), is 100 per cent owned by the Government and another
commercial bank, the Yemen Bank Reconstruction and Develo pment (YBRD), had the majority
shares by the Government (51 per cent Moreover, the Ministry of Finance was also the majority
shareholders of the three specialized banks with holding percentage of seventy or higher.
In the years following the 1994's conflict, commercial banks' intermediation functions
came t halt. Nominal credit growth in the country's private sector dropped from around 19 per
cent annually over 1991-1993 on an average to 13.4 per cent at the end of 1994. Three factors
were considered to h contributed to this phenomenon: (a) negative real interest rates due to high
inflation and hence a lack incentives for banks to lend or attract deposits; (b) the absence of
effective legal recourse for bank recover non-performing assets; and (c) the Central Bank
regulation prohibiting the use of fort currency deposits as collateral.
The real interest rate moved to a positive position as a result of macroeconomic
stabilization the past few years. In addition, banks were freed from the constraints of the past,
16
as the CBY embarked on an effort to overhaul the banking sector in 1996 with the support of a
US$ 80 million loan from the World Bank. Major. repositions of constraints included: (a)
permission for banks to lend in foreign exchange and deregulation of banking fees and
charges; (b) reduction of reserve requirement from 25 per cent to 10 per cent; and (c)
remuneration of legal reserves at 5 per cent and hard currency reserves at LIBOR-less-50
basis points. Expected benefits were: improved resource use, reduced transaction costs and
hence reduced bank-lending rates, and increased bank intermediation.
In 1997, the Government began proceeding with privatization of NBY and YBRD. This
was done by negotiating to relieve the banks of non-performing loans to public enterprise
debt, contracting an independent auditor to perform a diagnostic review of the banks,
consolidating financial monitoring of the banks in one ministry, inviting bids from a financial
adviser for the sale of Government shareholding of at least 51 per cent, and transferring bank
operational management to strategic partners. In addition, separate contracts were also signed
with independent auditors from international accounting firms to prepare special audits of the
1996 accounts for the three specialized banks. Their financial positions were to be
determined based on adequate and reliable information in order to decide the banks' future
status.
The CBY also engaged in many on-site and off-site supervisory activities which
resigned -in many of the bank directors. New requirements include external auditing and new
accounting norms, such as monthly reporting of delinquent borrowers and a classification of
loan and equity portfolios, thus bringing Yemeni banks in line whit international standards.
Meanwhile, the supervision capacity of the CBY itself was to be enhanced, through a new
recruitment process of inviting qualified candidates to its Supervision Department and a
medium-term development programme for the Department as well as salary restructuring for
the entire CBS".
Furthermore, a new law was proposed as a cornerstone for a more revitalized and
efficient banking sector. The main stipulations were: (a) an eight percent capital adequacy
ratio, paid-Lip capital to dross lending, for commercial banks in order to strengthen their
financial positions; (b) new criteria for bank licensing in order to improve tile quality of
banks at entry; (c) introduction of better accountability of individual directors, especially
regarding credit concentration, insider lending, and non-performance in order to ensure good
governance and soundness of banks; and (d) a framework for penalties applicable for all
financial institutions for infractions of banking law and regulations. Under an amendment, all
banks were permitted to engage in financial leasing so that increase diversity of financial
instruments would be available, thus minimizing credit risk and providing a vehicle for
medium-term credit.
(h) Tourism
The country is endowed with a unique culture, historical heritage and varied natural
environment and topography, including the long coastal line of beaches and islands, which have
great potential to attract international tourists and compete with other countries. Therefore,
despite a shortage of modern hotels and restaurants, the country's tourism had been on the rise.
Since the end of the militant conflict in 1994, the total number of tourist arrivals has increased,
reaching a peak of 84,000 visitors in 1997. Recent annual growth rates were 52.5 per cent in
1995, 21.3 percent in 1996, and 13.5 per cent in 1997. These surpassed the growth rates of
tourist arrivals in the diddle East region as a whole, which were 6.3 per cent, 4.4 per cent, and
5.0 per cent in 1995, 1996, and 1997, respectively.
Tourist revenues have been increasing after 1994. As shown in table (8) below, USS 33
million was received in 1995 with an annual growth rate of 73.7 per cent. In 1996, revenues
amounted to USS 42 million and grew to US$ 69 million in 1997, registering a remarkable
17
annual increase of 64.3 per cent; and they are reported by the 'Ministry of Culture and Tourism
to have reached US$ 84 million in 1998.
The importance of tourism for the national economy is apparent. Foreign currency
revenue from the tourist industry in 1997 contributed significantly to the country's total export
revenue, after oil sector. Tourism also vitalizes :investment in the economy's infrastructure and
brings employment opportunities throughout the country, even in some remote areas: There are
three dimensions of tourism that can be further developed: business tourism, cultural tourism, and
leisure tourism. The Government has taken the initiative of modernizing business facilities,
advertising its cultural wealth and improving the quality of services and facilities in tourist
establishments- it has also invited private-sector investment to develop the sector.
TABLE (8)
TOURIST ARRIVALS AND RECEIPTS, 1991-1998
Tourist arrivals (thousands)
Growth rate (per cent)
Receipts (US$ million)
Growth rate (per cent)
1991
1992
1993
1994
1995
1996
1997
1998
44
72
70
40
61
74
84
82
(15.4)
21
63.6
47
(2.8)
45
(42.9)
19
52.5
33
21.3
42
(2.4)
84
5.0
123.8
(4.3)
(57.8)
73.7
27.3
13.5
69
64.3
,
21.7
( ) Indicates negative.
Social Indicators
(a) Population
The country's population was estimated to be 16.5 million in 1997 and 17 million in 1998
an about 18 million in 2000. The fertility rate, 7.2 births per woman, is one of the highest in the
work At the same time, overall death ratios gradually decreased, reaching 12.2 per cent for
males and 10.4 per cent for females in 1997. Table (9) below presents annual population
growth rates by age group, forecast for a ten-year period ending year 2005. The country's
population is expected to grow at around 3.4 to 3.7 per cent per year. With such high annual
growth rates, the population will double in twenty years.
TABLE (9)
ANNUAL POPULATION GROWTH RATE BY AGE GROUP: FORECAST, 1995-2005
(In percentage)
Age 0-14
Age 15-64
Age 65+
Total
1995
2.99
4.33
(2.62)
3.43
1996
3.01
4.51
(1.85)
3.55
1997
3.36
4.17
(2.06)
3.56
1993
3.32
4.16
(1.40)
3.57
1999
3.30
4.08
(1.07)
3.54
2000
3.36
3.91
0.00
3.53
2001
3.37
3.69
0.90
3.45
2002
3.80
3.55
0.00
3.57
2003
4.19
3.39
0.36
3.68
2004
4.30
3.33
0.35
3.70
2005
4.09
3.38
1.06
3.65
Note: ( ) indicates negative.
Initially until year 2001, the middle age group, 15-64 years of age, is expected to grow
the fastest rate among the age groups, slowing down gradually to below the national average of
year 2002. In contrast, the youngest group, 0-14 years of age, is exp ected to grow at increasing
rates, finally surpassing the expected annual growth rate of the middle group and the national
average growth rate. Age group 65 and above is expected to decline until year 2000 and then
be; to increase gradually, contributing to overall population growth.
18
The population is youthful, with the age group 0-14 representing around 47 per cent of
total, the age group 15-64 representing 50 per cent, and those 65 years and above 3 per cent.
Thus, the country is faced with a pressing demand for nutrition, child health care, education,
and employment opportunities.
(b) Employment
The contribution of the population to the labour market increased from 1994 to 1999 by
46 per cent due to the large number of school drop-buts and to non-enrolmen t in the education
system. In addition, the existing population size of about 18 million and its rapid growth rate
resulted in the labour force growing at an annual rate of 4.5 per cent, with 130,000-150,000
new job seekers annually. The annual growth rate of the female labour force is estimated to
have been 9.3 per cent on average during the period 1994-1998, and that of male workers 4.3
per cent. In consequence, the relative importance of males in the total labour force declined
from 81.8 per cent in 1994 to 78.3 per cent in 1998, while the female workers' contribution
increased from 18.2 per cent to 21.7 per cent during the same period.
The concentration of the young in the labour force among the young is noticeable.
According to the 1994 Census, 67 per cent of female workers and 70 per cent of male workers
are in the age bracket of 15 to 44 (table 10). About 9.6 per cent of this group was unemployed.
In contrast, 4.6 per cent of the labour force aged 45 and above were unemployed, with the
overall unemployment rate registering 9.1 per cent (some other official and non official sources
estimate: unemployment rate to be between 25-35 %). Therefore, the country faces a
particularly challenging task of training an increasing flow of young workers.
The Governmen t traditionally acted as employer o` last resort and, therefore, the total
number of public sector employees rose to _430.000 by 1996. However, since the beginning of
the implementation of economic reforms, the country's employment condition seemed to have
worsened, at least in the short term, as a result of the freeze of new recruitment and the down sizing of employees in the public sector, while the private sector remained too weak to absorb
replaced workers.
The Government recognized the need to address the employment issue and drafted a new
national population strategy and action plan at the Second National Population Conference held
in October 1996. As one of its efforts to facilitate skill-matching mechanisms between job
seekers and privet sector req uirements, the Government requested the assistance of the United
Nations Development Programme (UNDP) in establishing a labour market database and
information system to monitor the labour market and identify all basic factors and constraints
affecting the country's employment conditions.
TABLE (10)
DISTRIBUTION OF LABOR FORCE
Age group
Both
Female
Male
10-14
6.5%
15.6%
4.2%
15-24
22.8%
25.3%
22.1%
25-34
25.8%
23.2%
26.5%
35-44
20.8%
18.5%
21.4%
45-54
12.8%
10.4%
13.4%
55-64
6.9%
4.6%
7.5%
65+
4.3%
2.3%
4.8%
Total
100.0%
100.0%
100.0%
19
(c) Vocational Training Pogramme
With the return of a large number of labourers form the Gulf States during the Gulf Crisis
in 1990, the labour supply in the country increased dramatically. However, most of these
surplus workers were unskilled or semi - skilled and the country's labour market lacked
qualified personnel with professional and technical skills.
To meet rising demand for skilled workers in the private sector, the Government created,
in 1995, the National Council for Vocational Training with a majority of private sector
representatives, whose mission was to supervise vocational and technical training. To help
strengthen the country's capacity to train skilled labour, the Government also launched the
Vocational Training Project in 1996, supported by the World Bank with a credit of 15.7 million
SDR. The private sector has shown strong commitment to supporting the management at
financing the project, not only by providing pre-employment enterprise-based and in-service
training but also by mobilizing funding for the project.
The project consists of three components: (a) to provide technical assistance, equipment
and training materials, and to rehabilitate facilities to help upgrade quality in each of the
country's vocational training centers; (b) to support community -based Adult Education and
Training Programmes specifically targeted to women; and (c) to set up a new governorate
structure strengthening the capacity of the General Authority for Vocational and Technical
Training, t public agency in charge of overseeing policy - making and setting national standards
for vocational training while monitoring implementation.
Efforts to promote technical skills among the country's future labour force have, resulted
measurable progress. In recent years, the total number of basic school graduates eligible to
enroll vocational and technical school has been around 400,00 annually, three per cent of which
usually consider attending technical and vocational institutes. however, the Ministry of Labour
and Vocational Training reports that until 1997, the annual in-take of new trainees in all
technical vocational institutes and center in the entire country was about 1,600. In 1998, the
number enrolled in various programmes including short-term intensive courses increased to
10,000. In addition the quantitative growth, qualitative re-direction of the training programmes,
such as promotion skills based on market requirements and producing addition to the
quantitative growth, quantitative re-direction of the training programmes, such as promotion of
skills based on market requirements and producing manpower with immediately employable
skills has been undertaken.
(d) Education
Education is a key factor in the development and changes in a country's economic and
social conditions. Under its structural reform programme, the Government is committed to
maintain an adequate expenditure-to-GDP ratio for primary education. As shown in table (11)
below, expenditure on education has remained close to six per cent of GDP during the period of
19 1999; except in 1995 when it dropped to 4.55 per cent, the year when the economic reform
programme started and total government expenditure was only 26.7 per cent of GDP as
compared to over 30 per cent during other years.
20
TABLE (11)
EXPENDITURE ON EDUCATION, 1990-1999
(AS percentage of GDP)
1990
Education
expenditure
4.89
1991
1992
1993
1994
1995
1996
1997
1998
1999
5.68
5.61
5.76
5.52
4.55
5.10
5.23
6.74
6.00
Also in 1999, education expenditure 19.62 percent of the total government spending
remained as it was 19.7 per cent in 1993. Around 85 per cent was recurrent expenditure,
leaving only F5 cent targeting for investment and maintenance. Moreover, the major portion of
the recur expenditure went towards salaries and the rest was allocated for goods and services.
Such insufficiency in investment in the education sector inevitably leads to a low standard of
educational staff, low quality of school premises, and limited capacity of admission. The
number of school classroom, and teachers in both basic / formal. (primary) and secondary has
increased at remarkable rates over the past several years.
As seen' in table (12-A), from 1991/1992 to 1997/1999, the number of primary school
increased from 8,533 to 11,520. The number of classrooms did not increase steadily every year,
but it increased, nonetheless by 28 per cent in the five-year period, from 63,569 to 81,517. The
number of primary school teachers grew at a higher rate of 87 per cent m from 63.569 in
1991/1992 to 81,517 in 1996/1997 and to 90661 in 1998/1999. The expansion of secondary
education was more remarkable. With the increases of school and classrooms at 136 percent
and 100 percent respectively in the same five-year period. Moreover, the number of seco ndary
school teachers want up form 5,753 to 16.672 at a growth rate of 190 percent, from 1991/1992
to 1996/1997 and to 13818 in 98/99 (table 12-B).
Student enrolment also rose. The 1994 census indicated that 55.04 per cent of the
children aged between 6 and 15 were in formal education, the enrolment ratio was up to 73.45
per cent in 1997. Nevertheless, the enrolment of student between 16 and 18 years of age in
secondary education was only 26.17 per cent in 1997, far below the world standard.
As for primary - school children, enrolment dropped in 1992/1996, compared to the
immediately preceding years, but rose immediately afterwards in both cases. As of 1996/1997,
60 per cent more students attended primary schools as comported to 1991/1992. In particular,
the 36 per cent increase of enrolment from 1995/1996 (2,42,472 pupils) was faster than the
growth rates of classrooms and teachers. Thus, the number of students per classroom and per
teacher, which are indicative of the quality of education, increased in 1996/1997. Nevertheless,
these numbers have shown a declining trend in general, suggesting that primary education has
been improving.
Enrolment in secondary schools has been steadier than that of primary schools. The
figure for 1996/1997 (320,902 pupils) was double that of 1991/1992 (154,800 pupils), and it
increased to 323124 in 98/1999. Recent movement of student /classrooms and student /teacher
ratios show similar patterns to those observed in the case of primary education: a decline in
general. In particular, there were 19 students on average per teacher in 199611997 compared to
27 students in 1991/1992, amounting to a 28 per cent reduction, but it increased to 23.4 in
9811999.
Despite the noticeable progress made recently in primary and secondary education in
general, there is still a need to increase access to and improve the quality of education: adult
illiteracy remains high: 62 per cent of adults were considered to be illiterate according to the
World Bank estimate in 1997. The number of admittance to both basic and secondary education
21
is increasing at estimated annual growth rates of 3.2 percent and 4.2 per cent respectively.
However, around 63 per cent of students enrolled in the first years of basic education drop out
before completing the ninth grade. About 45 per cent of throes enrolled in high schools drop
out before reaching the twelfth grade and obtaining the diploma. The deficiency in the
absorption capacity of the school system and the lack of awareness of the importance of
education seem to explain this tendency.
The need for better public education is particularly urgent for under -served population,
which tend to be female, rural, or both. Nationwide, 37 percent of the adult men and 74 percent
adult women are illiterate. Although the literacy rate in the country as a whole is 44 percent, it
differs between rural and urban areas. Literacy is significantly lower in rural areas, with only
15 per cent of females and 58 percent of males are able to read and write, then in urban areas
where 52 per cen t and 77 per cent, respectively, are literate. This is no surprise as over 50 per
cent of the student population is located in urban areas though 77 per cent of the total
population lives in rural areas. Few teachers are willing to work in rural communities,
preferring to stay in cities in which there is a greater demand for teachers and working
conditions seem to be better.
Gender imbalance in school enrolment is acute. Gross enrolment rates in rural areas
reveal that educational opportunities for girls, 18 per cent of whom are much more limited than
for boys, 55 percent of whom attend school. On the nationwide average, 80 percent of male
children, and only 39 per cent :of female children attend primary school. The disparity between
the sexes even lager with each successive education level; there twice as many boys as girls in the
first grade, there times as money in the sixth grade, and more than six- times as many in the ninth
grade.
The Government has.-approved a reform programme calling for improving the quality of
primary and secondary education, increasing the number of females enrolled and expanding
education facilities in under- served areas. Anew education law has also been passed, introducing
compulsory basic education for a nine-years cycle. However, to enforce the new initiatives
community participation is crucial, particularly beyond the primary level. The Education Sector
Management Reform Project recently initiated by the Ministry of Education attempts to improve
capacity of education authorities at the Governorate level in order to become involved in planning
decision-making, and implementation of education.
TABLE (12-A)
SCHOOL ENROLMENT AND NUNIBER OF SCHOOLS, CLASSROOMS AND
TEACHERS IN BASIC/FORMAL SCHOOLS, 1991-1999
Enrolment
Number of School
Number of
Classroom
Student /classroom
Ratio
Number of Teachers
Student/teacher
Ratio
1991/1992
1992/1993
1993/1994
1994/1995
1995/1996
1996/1997
1997/1998
1998/1999
2059 492
2011 724
2400 836
2493 017
2425 472
3294 241
2522 924
2579 897
8 533
8 097
9 488
9 579
10 007
10 158
10 820
11 520
63 569
61 200
73 233
78 759
76 344
81 517
88 942
90 661
32.3
32.9
32.3
31.6
31.8
40.4
28.37
28.46
524 96
58 627
70 700
78 646
85 688
93 336
108074
122577
39.2
34.2
34.0
31.7
28.3
33.5
23.34
12.05
22
TABLE (12-B)
SCHOOL ENROLMENT AND NUMBER OF SCHOOLS, CLASSROOMS AND
TEACHERS IN SECONDARY SCHOOLS, 1991-1999
1991/1992
1992/1993
1993/1994
1995/1996
1996/1997
1997/1998
154 800
150 856
194 663
232 506
254 255
320 902
294 369
323 124
815
852
912
1224
1396
1924
2196
2309
Number of Classroom
3616
3630
4692
5678
6061
7232
8573
9076
Student /classroom
Ratio
42.8
41.6
41.5
40.9
41.9
44.4
34.34
35.60
Number of Teachers
5753
7292
8617
11130
11469
16672
5894
13818
Student/teacher Ratio
26.9
20.7
22.6
20.9
22.2
19.2
49.94
23.38
Enrolment
Number of School
(e) Health
1994/1995
Care
Infant mortality rates fell from 93 per 1,000 live births in mid-1990 to 80 per 1,000 in a
decline of 14 per cent in seven years, indicating a steady improvement in general conditions in
the country. During the same period, life expectancy increased from 57 to 58 years, through it
remains the lowest in the ESCWA region.
Despite such remarkable achievements, there is a shortage of public health services and a
lack of essential drugs. The poor state of the country's current health care system is obvious
from the following indication: (a) only 45 percent of the total population have access to health
services: (b) a high rate of 42 to 73 percent of patients per area are passed on to expensive
private health facilities due to the lack of services in government facilities: and (c) an
immunization coverage reached only 28 per cent of the overall population. About one million
cases of infection were reported among the 16 million in 1997 and about 41 percent of the
entire population is estimated to be suffering from some kind of disease.
Lack of financing, poor organizational and managerial structures, and inadequate training
of health care personnel have led to difficulties, particularly, in reaching rural residents. Merely
30 per cent of the rural population on average have access to health care: worse yet, public
medical facilities in many of the rural areas are almost non-existent. Also many peoples who
live in highly scattered communities throughout the rugged countryside cannot afford the added
cost of commuting to distant health care facilities. As a result, over 6,000 people die every
month from malaria, enteritis, dysentery, respiratory diseases, typhoid, hepatitis I3, and other
illnesses In addition, maternal mortality among the highest in the world, at an estimated rate of
1,000 per 100,000 births.
The Government has made it a priority to establish more effective health services and
provide them to the most needy segments of the population. As in the case with the primarily
and secondary education, the government has maintained a steady expenditure-to-GDP ratio for
primary health care since the beginning of the FFYP implementation. Thus, the number of
physicians in the country increased from 3,220 in 1995 to 3,800 in 1997, and the number of
dentists from 206 in 1995 to 256 in 1997. During the same period, the number of hospitals beds
also increased, from 93 to 96 and from 10,700 to 110,074, respectively.
23
1998/1999
However, the magnitude of health care expenditure is still small and inadequate,
accounting for only 4.5 and 3.8 per cent of the national budget in 1998 and in 1999 comparing
to 4.0 and -1.5 in 1991 and in 1992 respectively. Also the expenditure as a percentage of GDP
is still small accounting for only 1.24 percent in 1999. The figure is considered to be extremely
low when compared to other developing countries. In consequence, 75 per cent of government
health care costs are covered by personal contribution of the households, while the Governmen t
contributes the remaining 25 percent.
Recurrent expenditure typically constitutes most of the total national health budget: for
example, more than 85 per cent of the 1997 budget was for recurrent expenditure, leaving only
less than 15 percent allocated for investment. In addition, wage costs constitute a large portion
of operative expenditure, and thus there are limited resources for non-wage items, such as
equipment, maintenance, and supplies. Hence, distortion in the allocation of public funds has
exacerbated the low quality of public health care services.
To address the failure of the country's health care system, the Ministry of pubic Health
has put forward a Health Sector Reform Strategy. The long -term objectives are to achieve: (a)
adequate and univ ersal access to health care services: (b) equity in both delivery and eventually
the financing of health care: (c) enhanced allocation and technical efficiency of the service
delivery system (d) improved quality of health services: and (e) long term financial stability in
the system.
The Reform will take place in two phases. Initially the key aspects of the reform will be
focused on lessons learned, key legislation passed, revision of the financial system initiation,
and major actors brought on board. A fiv e-year consolidation phase will follow, in which the
lessons learned in the initial phase will be fashioned into long-term systems, policies, and
regulation .In addition, at least 40 per cent of districts will be integrated in to the District
Health Systems, (DHS) in the first phase and the remaining 60 per cent will be integrated in the
second phase. Key innovation of the DHS approach, in which a district will be the basic unit of
service provision, are managed by team work, not individuals, community participation and
management decentralization to the district level. The initial phase coincides with the end of
the FFYP for the years 1996-2001 followed by the beginning of the consolidation phase in year
2001, which will coincide with the Second Five Year to be implemented in 2001-2005.
TABLE (13)
EXPENDITURE ON HEALTH SERVICES,
1990-1999 (as percentage of GDP)
Health expenditure
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
1.15
1.31
1.18
1.32
1.00
0.86
1.21
1.08
1.60
1.24
(F) Social Safety Net work
Economic reform programmes continue in the country, but a further negative impact on t
country's economy is expected as a result of job losses, acceleration, a decline in the provision
social services, and thus the deterioration of living standards. To mitigate such adversity and protect
those most negatively affected, the Government created the Social Safety Network (SSN)
accompany the economic adjustment policies. Element of the SSN include the Social Welfare Fur
the Public Works Fund, the Social Fund for Development, and Vocational Training Programme.
(1) Social Welfare Fund
The Social Welfare Fund was established with a budget of YRls 1 billion allocated in 19
in order to provide direct support to particularly vulnerable groups such as the poor,
24
handicapped, the elderly, and dependent women. Under the supervision of the Ministry of
Insurance and Social Welfare, the Fund disburses financial assistance to destitute families, who
are suffer from the removal of the generalized subsidies on basic commodities and services,
which will eliminated completely by the year 2001.
(2) Social Public Works projects Program
This Fund was set up in mid 1996 as an emergency fund under the supervision of
Ministry of Planning and Development and with support of the World Bank amounting SDR
million. It assists in creating income -generating employment opportunities for unskilled labour
while at the same time upgrading and rehabilitating environmental and sanitary conditions in
country. The Fund comprises small-scale intensive-intensive civil works projects in country-~r
localities raining form waste management, water distribution systems, road repairs, terracing
drainage works of soil conservation to repair work on health centers and school building. So
far, up to 96,000-manpower work months have been generated.
(3) Social Fund for Development
Under Law No.10 of 1997, the Social Fund for Development (SFD) was established a.,
independent institution with funding jointly provided by the 'OPEC Fund for International
Development, and the Government. This nation-wide public institution is to contribute to
Government's efforts towards alleviation of poverty and unemployment in the country, w
cushioning the hardships associated with the reform program and inducing greater community
participation.
The SFD implements three activities: (a) the Communities Development Program finance
a number of projects aimed at affording basic social services: (b) the Small and Mi Enterprise
for water Development, and environment, to the most needy communities Programme, to open
up the banking sector to small entrepreneurs and facilitate providing them small capital and the
business know-how so that long -term sustainable employment opportunity will be created
outside the public sector through straight- forward banking operation, and (c) the Institutional
Capacity Building programme to support the NGOs which are active and effective in their role
in drawing up and implementing programs and development projects.
III. DOMESTIC OPPORTUNITIES AND CONSTRAINTS
(a) Peace and Stability
Yemen's most pressing international issue was the undemarcated border with the
Kingdom of Saudi Arabia. During 1996 and 1997, negotiations intensified to reach a solution
amicable for both sides. After the historic visit of Crown Abdullah Ibn Abnul Aziz to Sana'a,
who headed large and important Saudi delegates, on the occasion of celebration the 10th
anniversary of the national day of the reunification, which followed by a successful visit to
Jeddah, Saudi Arabia by the president Ali Abdullh Saleh on June 12-13, 2000
In a historic event, which has dispelled tension and potential conflict, Yemen and Saudi
Arabia signed an International Land and Sea Border Treaty in Jeddah on June 12 2000. They
had defined the borders according to the guid elines laid down by AI-Ta'ef Agreement, as well
as agreeing border issues not covered in the agreement, and noted that the Memorandum of
Understanding had made a great contribution to a final solution. Tile International Land and
Sea Border Treaty was sign ed by Yemen's Deputy Minister and Foreign Minister Ba Jammal
and HRH Saoud Al-Faisal, Saudi Arabia's Foreign Minister, and attended by President Saleh,
Crown Prince Abdullah, and officials from both countries.
25
Following the signing of the treaty, President Saleh held a press conference. I-le opened
by saying: "We have reached a peaceful, cordial and satisfactory solution that will be protected
by the coming generations from Saudi Arabia and Yemen. We have signed a treaty for final and
permanent international borders." He added that the main problem had been how to define the
borders in Jabal Thar and Ras AL Ma'Wuj, but that it had been "perfectly solved", and that this
had been the ease with the other borders, from Jabal Thar to the 19th Parallel, and from the
19th to the 52nd Parallel.
Normalization of relations is expected to lead to increase economic cooperation between
the tow countries and enhance the stability in the region.
In addition, Yemen and Eritrea agreed to bring the 1995 dispute over the Eriter ian
occupation of the Greater Hunaish island in the Red Sea to International Arbitration Court, with
the supports of France, the tow countries stated their agreement to abide by the outcome of a
decision by the international Court. The decision by the International Arbitration Court was in
favour of Yemen, which won the case.
Also, Yemen and its neighbour Oman solved their border problem, and the relation
between the tow countries is excellent.
In addition, the relation with the Gulf States has improved a lot in recent years,
particularly, with Kuwait, which just assigned its new ambassador in Sana'a in May of this year
2000.
Relations with the west are good and have improved in recent years. This was reflected
by new Cooperation agreements with the European Union Signed in 1997.
(b) Economic Infrastructures
Despite the improvement of the physical economic infrastructures in the past 10 years
(roads, ports, airports, water supply systems, power supply, telephones, ...etc.). Still there are
less than 10% of the road network are paved, the network does not reach a large proportion of
the population, and most of it is in poor conditions. Moreover, electricity from the public grid
reaches only about 35% of the population, only about 40% of the population has access to safe
drinking water, and telecommunications penetration is still very low outside major cities and
rural areas.
The SFYP (2001-2005) is aiming to continue to build a complete basic infrastructure in
order to encourage local and foreign investment and to facilitate production, marketing and
distribution
Therefore, it is very important to build the basic infrastructure, and enhance the available
means through the following policies:
1.
Enhance and develop the transportation and communication sector by enlarging and
modernizing the available transportation and communication means in order to tic all the
governments with each other and with the outside world.
2.
Encourage private and foreign sector to invest in the infrastructure activities.
3.
Pave more roads in order to tie all governments, districts, and urban areas, which in turn,
will ease the supply of public services and encourage investment over all the country.
4.
Extend energy power capacity and increase the size of the available consumption
capacity for production and housing uses and to provide its services to rural areas
through more public investment for production and repair power sources and encourage
the private and foreign investment in enhancing and developing energy power
production.
5.
Increase the water consumption for both production and housing uses under some
measures of water rationalizing.
26
6.
Complete the sewage projects in large and small cities in the country in order to avoid
water contamination and diseases.
(c) Policy Reform
The causes of the macroeconomic imbalance during the post-unification period of 19901994 were quite straightforward. Large fiscal deficits and their financing through inflationary
credit and monetary expansion caused inflation to accelerate and resulted in a loss of
confidence in the Yemeni rial. Together with negative interest rtes and a lack- of investment
opportunities, this induced substitution of bank deposits in Yemeni rial into foreign currencies,
leading to a rapid depreciation of the Yemeni rial in the parallel market. In order to restore
confidence in the domestic currency and stabilize the economy in general, the Government
established a set of medium-term adjustment programmes designed to reduce basic monetary
and fiscal imbalances during the five-year period 1996-2000.
The macroeconomic goals include a steady increase in real non-oil GDP growth to six per
cent a year on average, a reduction in the core inflation rate to about five per cent a year on
average, a reduction in the balance of payments deficit, a reduction in the current account
deficit to an average equivalent to two per cent of GDP, and the maintenance of sufficient
foreign exchange reserves to cover four and a half months of import value.
In support of these objectives, the programme entails forceful stabilization measures:
significant budgetary cuts through the removal of subsidies and price increases; the avoidance
of any domestic bank financing of the public deficit; auction sales of government Treasury
Bills to allow for non-bank financing; tighter monetary policies; the achievement of positive
real interest rates; contraction of aggregate demand; adoption of a floating exchange rate
system; and the unification of the exchange rate system; and the unification of the exchange
rate.
1. Price adjustment
Several key economic products and services, such as sugar, rice, wheat, flour, milk,
edible oil, medicines, gasoline, diesel, kerosene, liquefied petroleum gas, electricity, telephone
services, water, and sewage services were subsidized by the Government, through fixed prices
to consumers and users. For example, commodities were. imported at an official exchange rate
that remained fixed at higher rates, such as US$ 1=YRls 96 for wheat and US$ 1=YRls 92 for
wheat flour, while the Yemeni rial depreciated in the parallel market. Thus, the Central Bank
was essentially financing the subsidy costs. Such intervention was introduced for the purpose
of providing basic necessities at low prices to the country's most vulnerable groups during the
economic hardship in the period of 1991-1994. In addition, to a certain degree, subsidizing
energy prices to domestic industries and agricultural activities.
However, the subsidies had not only become too costly but also resulted in distortions in
resource allocation at *the macroeconomic level, especially as the subsidized prices of commodities
were set at levels significantly below their economic costs. 1n particular, the low prices- of
subsidized items, such as electricity, petroleum derivatives, water for industrial and agricultural
uses, led to excessive use of these goods and services, overburdened the government budget, and
exacerbated environmental degradation.
In order to remove the distortions, substantial price adjustments were introduced and most
subsidies have been gradually lowered or eliminated since the beginning of 1996. Thus, the
Ministry of Finance projects that the total expenditure on subsidies would be down to US$ 120
million in the 1998 budget. After the elimination of a subsidy on one of the key commodities, wheat
and wheat flour, in 999, there is only one item left that is still subsidized which is diesel.
27
2. Reducing inflation rate
The inflation rate measured by consumer price index (CPI) rose sharply during 19911995. A five-year average inflation during this period recorded 33.4 per cent in Sana'a, with the
peak at 53.5 per cent in 1995, while a five-year average inflation in Aden was 44.1r per cent.
One main cause of such high rates of inflation was the monetary financing of the central
government deficit, which was precipitated by the country's unification and the 1994 civil
conflict. Another factor was the sharp depreciation of Yemeni rial (YRI), which significantly
worsened from mid-1994 to mid-1995.
Large increases in the prices of fuel, power, water, and wheat produced a major inflation.
spike in January 1996, soon after the Government started implementing the gradual
elimination, of subsidies on these goods and services. However, prices in general remained
relatively stable for the rest of the year. In fact, the core inflation rate, which excludes the
effect of large increases in administered prices, fell sharply under the concurrent contractionary
monetary policies. Thus, general inflation also fell nationwide from 56 per cen t in 1995 to 30
per cent in 1996, and further down to 5.4 per cent in 1997. The Government's objective to
reduce inflation to an annual rate of 7 per cent during the FFYP period was successfully met.
3. Monetary policy
The EFARP's monetary policy goals wer e: to attain a significant reduction in inflation,
establish the conditions for bank re-intermediation, and enhance confidence in the currency in
order to attract increased inflows of remittance and private capital into the economy.
(a) Money supply
In addition to the Government's restrictive fiscal measures' under the EFARP, the Central
Bank of Yemen (CBY), in December 1995, offered Treasury Bills to the public for the first
time in its history in order to establish an alternative source for government budget financing
from the private sector, absorbing excess liquidity, and to broaden the_ availability of rialdenominated financial instruments. By the end of 1996, the nominal value of Treasury Bills sold in
auction amounted to 15 per cent of the total money supply. The CBY continued the auction in
January and February 1997, with the total nominal value of YRI 8.987 million. Starting from March
1997, the CBY auctioned three-month Treasury Bills. With the practice proven to be successful, it
now auctions 30-, 90-, 180-, and 360-day instruments to private investors. The Treasury Bills sales
to the non-bank sector, which not only led to a reduction of the Government's debt to the domestic
banking system, but also served to establish a market rate through the interaction of supply and
demand.
Money supply growth was modest at a rate of 8.6 per cent annually in 1996, about onesixth of the annual growth rate of 48.5 per cent in 1995 and less than one-third of the annual
growth rate of 31.7 per cent in 1994. The CBY continued to maintain its tight monetary policy
and the money supply grew at moderate rates of 10.7 per cent a year in 1997 and 11.7 per cent
in 1998 (table 14).
TABLE (14)
MONEY SUPPLY AND GROWTH RATE, 1991-1998
1991
1992
1993
1994
28
1995
1996
1997
1998
Broad money
(Billion Yrls)
Growth rate
79.3
79.2
127.0
167.2
248.3
269.6
298.4
333.4
-
22.6%
30.7%
31.7%
48.5%
8.6%
10.7%
11.7%
(b) Floating exchange rate
The official exchange rate of the Yemeni rial was about four times higher than the
parallel market rate (US$1 = YR1 12.01 versus US$1 = YR1 46.76) at the beginning of 1993.
The gap continued to widen and, in mid-1994 during the civil strife, the official rate jumped to
ten times higher than the parallel market rate (US$1=YRI 12.01 versus US$1 = YR1 119.00).
The Government devalued the Yemeni rial to US$ 1=YR1 60.04 in the first quarter of 1996 and
maintained this exchange rate throughout the year. This correction, applied to customs
evaluation, was expected to have generated additional rial revenue on an annual basis of YRI
103 billion in oil exports and YRI 8.3 billion customs revenues. However, the official exchange
rate still remained two to three times higher than the parallel market rate until the end of 1996.
The Government began 1996 by removing all controls on the exchange rate. On January
l, 1996, the Government floated the rial for all private sector transactions under its exchange
system reform, while continuing to apply the official rate of exchange to budget accounting,
transactions between the Ministry of Finance and the CBY, and customs valuation. By mid1996, however, multiple exchange rates were eliminated when the Government fully unified all
exchange rates at the level of the floating rate in order to restore the market-clearing role of the
exchange rate and promote efficient markets and external competitiveness.
The Yemeni Government also adopted a policy of pursuing exchange rate stability
through strongly disciplined fiscal and monetary policies. Under the successful implementation
of these policies, the Yemeni rial became fully convertible and the parallel market exchange
rate remained remarkably stable at the general range of YRl 160 per USS for the last three
years.
4. Fiscal policy
The Government's budget deficit has remained relatively large since 1991 and averaged
around 16 per cent of GDP in 1992-1994. The large government wage bill, accounting for
closely to sixty per cent of current expenditure, together with military expenditure, continued to
compress development expenditure, which comprised only three per cent of GDP, in 1993 and
1994.
The Government set up its 1996 budget objectives and implemented several discretionary
fiscal measures to reduce the cash deficit: to reduce recourse of domestic bank financing and
instead secured domestic non-bank resources; restricted certain non-development outlays
through containing the overall government wage bill, eliminating general subsidies, and
phasing out support to public enterprises, while allowing for an increase in development
expenditure such as the investment in infrastructure; and to achieve and maintain fixed
expenditure-to-GDP ratios for social sectors, particularly in primary health care as well as
primary and secondary education.
As a revenue-enhancing measure, the tax base was expanded when new production and
excise taxes were introduced. Implementation of the income tax reforms undertaken in 1996
and the introduction of a general sales tax system during 1997 were also expected to increase
the budget revenue. In addition, rep lacing import restrictions by the ad valorem tariff would
provide more revenue to the Government.
29
1. Government budget
In the first half of 1996, the Government passed a budget, under the auspices of the IMF
and the World Bank, which targeted a 1996 deficit to be 3.8 per cent of GDP. This reasonably
transparent budget helped reinforce the concretionary monetary measures introduced in 1995.
Furthermore, the economic reform programme under the IMF ESAFIEFF specified that by reducing
and eliminating subsidy outlays as well as containing the wage bills, the budget deficit should be
cut to 2.5 per cent of the GDP in 1997 and 2.2 per cent in 1998. But the reform program was
successful in reducing the budget deficit in 1998, since the budget deficit was 1.9 % of GDP in
1998 (in 1997 the budget deficit was 3.6).
As shown in table (15) below, the budget deficits were over 10 per cent of GDP until
1994 and were reduced to 5.9 per cent in 1995, and to only 0.1 per cent of GDP in 1996.
TABLE (15)
GOVERNMENT FISCAL STATUS AS PERCENTAGE OF GDP, 1991-1999
1991
1992
1993
1994
1995
1996
1997
1998
1999
Government revenue
26.0
18.7
17.3
15.8
20.8
35.2
40.4
47.4
27.9
Government expenditure
30.1
31.2
31.2
32.2
26.7
25.3
41.5
49.4
31.8
4.2
12.5
14.0
16.3
5.9
0.1
3.6
1.9
3.9
Budget deficit
In addition to the tight fiscal policy introduced in 1995 when government expenditure
was reduced to 26.7 per cent of GDP, such remarkable reductions of budget deficits were also
due to large increases in Government revenue. In January 1995, the official rate of exchange
applied to budget accounting was devalued by more than four times. Subsequently, by mid1996, the Government frilly unified all exchange rates at the prevailing level of the floating
market rate, which led to a further depreciation of the Yemeni rial. This exchange-rate-related
factor brought windfall revenues. Moreover, relatively high world crude oil prices during the
concurrent period resulted in higher -than-expected oil export receipts and exceptional payments
from foreign oil companies. Hence, there was a fiscal surplus for the first half of 1996, and the
year ended with a small deficit of YRIs 464 million. A large increase in the government
expenditure in 1997, at a nominal rate of 34.5 per cent, put the government budget into a deficit
at 3.6 per cent of GDP, despite the 29.2 per cent growth in the revenues from 1996.
The share of oil revenue in the total current government revenues, exclusive of that of
capital and investment revenue increased from 5.68 per cent in 199-1 to 11.05 per cent in 1995
and to 17.81 per cent in 1996. It is also estimated to have contributed to 50.77 per cent of the
total current revenue in 1997. However, a significant drop in world oils prices and their
continuous declines since the end of 1997 resulted in a huge reduction in the 1998 government
revenue. Preliminary results show that oil export revenue in 1998 was US$ 415 million, a 63per cent reduction compared to US$ 1.2 billion in 1997. As a result, the deficit-to GDP ratio
worsened in 1998 to 5.8 per cent.
The 1999 budget was prepared based on an oil price forecast of US$ 12 per barrel. As of
February 1999, oil prices were still lower and thus oil revenue was expected to be lower than
planned, which, in turn, affected the Government's budget position adversely. However, world
oil prices have since then recovered and are expected to average higher than initially forecast
by the Government. Thus, the Government's revenue increased.
Balance of Payments
The balance of payments of the country traditionally suffered from fundamental
weakness of its economic structure, such as dependence on private transfers, a limited export
base, and volatile crude oil export revenue, and from expansionary demand policies that
30
maintained high volume imports relative to exports. Balance of payment deficits were financed
mainly by printing new money.
1. Trade balance
The negative impact by- neighboring countries following the Gulf Crisis of 1990-1991
included the closure of their markets to Yemeni exports. Consequently, the trade balance swung
into a massive US$ 971.3 million deficit in 1993. The value of exports was less than half of
that of imports during this immediate post-unification period. In 1994, exports grew at a rate
above 50 per cent from the 1993 level. In particular, crude oil exports almost doubled as shown
in table (16).
TABLE (16)
TRADE BALANCE, 1992-1998 (in millions of US$)
1992
1993
1994
1995
1996
1997
1998
1066.2
1166.8
1796.2
1980.0
2262.8
2264.0
1145.2
819.5
141.6
105.1
833.6
178.8
154.4
1615.4
77.3
103.0
1735.0
133.0
112.0
1976.2
209.8
76.8
1934.9
199.2
129.9
930.2
102.3
112.7
(1935.5)
(2138.1)
(1522.0)
(1831.0)
(2293.5)
(2406.5)
(l 674.4)
Crude oil and products
(138.1)
(165.4)
(207.9)
(172.0)
(176.5)
(165.3)
(84.9)
Oil and gas sector
capital goods
Others
(370.3)
(426.6)
(172.8)
(114.0)
(95.9)
(84.5)
(54.4)
(1427.4)
(1546.1)
(1141.2)
(1546.0)
(2021.1)
(2156.7)
(1535.1)
(869.3)
(971.3)
274.2
149
(30.8)
(142.5)
(529.2)
Exports
Crude oil
Oil products
Non-oil exports
Imports
Trade balance
( ) Indicates negative.
Meanwhile, on the import side, non-food items declined by 31.8 per cent from 1993 to
1994. As a result, the trade balance moved to a surplus of US$ 274.2 million in 1994. However,
the trade balance deteriorated from 1994 to 1995 with imports growing twice as fast as exports
in the following years. Furthermore, with food imports growing at 33.3 per cent from US$
687.0 million in 1995 to US$ 915.5 million in 1996, it plunged back to a deficit in 1996. While
the food imports in 1997 remained basically the same as those in 1996, the gap between export
and import values widened due to a 12 per cent increase in non-food imports.
Due to the heavy dependence of Yemeni exports on oil, the country's economic
performance is vulnerable to external shocks. The economic crisis in South-East Asia has direct
adverse ramifications in the economy since about 95 per cent of Yemeni exports are oil exports
and 76 per cent of them go to non-Arab Asian countries.
2. Current account
When the trade balance registered the largest deficit in the country's history in 1993, the
current account deficit also reached a peak of US$ 1,247.8 million. However, it moved
positively in 1994. Not only the improvement in the trade balance, by US$ 1,245.5 million,
from a deficit of 971.3 million to a surplus of 274.2 million, but also the improvement in net
service exports, by USS 310.0 million, from negative 866.3 million to negative 556.3 million,
contributed to such a quick recovery. Since then the country has been running current account
surpluses; USS 235.4 million in 1994, USS 194.0 million in 1995, USS 106.3 million in 1996,
and USS 25.3 million in 1997.
31
3. Capital account
The capital account deficit set a high record in 1994 and has remained sizable; US$ 841.0
million in 1994, US$ 826.0 million in 1995, and US$ 397.1 million in 1996. These large
deficits essentially reflected the country's large amortization obligations on medium and longterm loans as shown in table (17) below.
However, the capital account of the country moved to a surplus of US$ 24 million in
1997 as its amortization obligations were drastically reduced to less than a third of the 1996
level, when the country successfully negotiated the write-off of some of its outstanding debts.
As of September 1998, the deficit moved back to US$ 184 million. Nevertheless, the negative
figure was primarily due to trade-related factors.
TABLE (17)
STATUS OF MEDIUM AND LONC-TERM LOANS, 1992-1998 In millions of US$)
Medium-and longterm loans (net)
Disbursements
Amortization obligations
1992
1993
1994
1995
1996
1997
1998
(761.8)
(787.4)
(684.6)
(694.0)
(520.7)
(66.4)
(86.4)
160.6
129.0
82.1
53.0
135.3
151.7
81.6
(922.4
(916.4)
(766.7)
(747.0)
(659.0)
(218.1)
(168.0)
() Indicates negative.
Due to the large capital account deficits, the overall balance of payments continued to be
negative until 1996 in spite of the current account surpluses maintained since 1994. The overall
deficit was about US$ 674 million, in 1994, US$ 553 million in 1995, and US$ 393 million in
1996.
(d) Conductive Environment for Private Sector Development
The root of economic difficulties in the country is not restricted to macroeconomic
management, but rather lies in more fundamental infrastructure of the economy. Therefore, the
Government has launched structural reform programmes to complement macroeconomic
stabilization, focusing on longer-term changes in the legal, regulatory, and policy environment
of its economy. These reform programmes sera to achieve structural transformation of the
productive sectors and increase the efficiency of resource allocation by reforming public-sector
inefficiencies, reducing state domination, and establishing policies conducive to improving the
climate for private-sector investment.
The Government's structural reform priorities include: major improvements in the tax
system; the elimination of subsidies; reform of the civil service and customs administration;
legal reform to enhance banking system intermediation; financial sector reform focused on
indirect monetary control, the quality of the banking system and prudential supervision; trade
liberalization, tariff reform, and harmonization of excise taxes; multi-sector privatization;
liquidation of State-owned enterprises; and major liberalization of the investm ent and
regulatory framework to further enhance private sector investment and activity.
In addition, the Government expenditure is to be re-oriented toward social development
and public investment in infrastructure in order to implement the reform with th e minimum
negative social impacts.
1. Tax system reform
In addition to an upward adjustment in some excise and sales taxes that had been
envisaged in the 1995 budget, the Government initiated a broad-based structural reform of the
32
indirect and direct tax systems in 1996. Following a large increase of 90.65 per cent a year in
the total tax revenue in 1995, which was probably a rebound to the reduced collection due to
disruption by the 1994 civil strife, the total tax revenue grew by 51.06 per cent in 1996. As
seen in table (19) below, this lame increase was primarily attributable to a jump in the indirect
taxes collected, which increased by 118.17 per cent, and in the direct taxes collected, which
increased by 42.31 per cent.
Compared to the result of 1996, a growth rate in the Government's tax revenue in 1997
was smaller, yet still significant, at 18.99 per cent. Income and profit taxes marked notable
growth at 30.23, 35.4 per cent in 1997 and in 1998 respectively as a result of simplified
collection methods and increased efficiency in tax assessment measures. On the other hand,
indirect taxes increased only modestly at 15.53 per cent in 1997.
Motivated by the drive to boost Government revenue as projected in the 1999 budget,
new amendments to Income Tax Law No. 31 of 1991 have been introduced. In order to broaden
the income tax base, and to improve compliance, the amended measures include consolidation
of all income for tax purposes, rationalization of rates, brackets, exemptions, deductions, and
income coverage, as well as bank provisioning. Primarily affected sources of income are
salaries and other payrolls, revenue from rented real estate, and profits from commercial and
industrial activities. The new law is expected to lead to more than doubling of Government
revenue from payroll taxes, which are the most effectively collected, reaching up to 82 per cent
of the total tax base compared to less than fifty per cent of its tax dues collected in general.
Amendments to the existing Production, Consumption, and Services (Excise) Tax Law
were introduced in 1998, to broaden the indirect tax base, improve tax compliance, eliminate
cascading, increase tax efficiency and neutrality, and improve incentives. In addition, a draft
General Sales Tax Law, which replaces production tax with the basic rate often per cent for
general goods and services, and zero rating for exports, is expected to be approved by the
Parliament and put into effect by the beginning of the year 2001.
TABLE (18)
GROWTH OF TAX REVENUE, 1991-2000 (In percentage)
Direct taxes
1991
38.81
1992
30.61
1993
28.49
1994
20.79
1993
42.31
1996
44.72
1997
28.86
1998
34.92
1999
18.14
2000
2.46
Indirect taxes
31.34
5.03
19.80
1.58
118.17
53.43
15.53
(7.61)
8.32
11.09
Total tax revenue
33.23
11.79
22.48
7.80
90.65
51.06
18.99
4.34
11.89
7.78
Estimated Data.
( ) Indicates negative.
2. Trade Liberalization
The country's trade regime had been primarily geared toward protection of highly importdependent, import-substituting industries. Restrictive trade policies included: (a) use of
quantitative restrictions to protect local producers and export restrictions to protect local
consumers and users; (b) the tariff structure in which tariffs were highest on final goods, lower
on intermediate goods, and still lo wer on production inputs; and (c) an overly-complex and
inefficient customs administration based on a process requiring fifty signatures to clear goods
and with few controls in determining the value of commodities or length of time to clear them.
In addition, poor administration of duty rebate and related programmes aimed at encouraging
exports as well as the high freight costs due to a low volume of trade in most Yemeni ports had
resulted in a strong bias against export-oriented firms.
In order to promote diversification of the economy and to provide improved incentives
for exports and higher value-added processing industries, the Government completely
33
eliminated import licensing in 1996, removed export controls and restrictions, replaced import
bans with tariffs, and streamlined customs clearance procedure.
Under the tariff reform, the number of tariff bands as well as tariff rates were
substantially reduced to four bands and the rates were to be between five and twenty-five per
cent ad valorem. A five per cent tariff rate is imposed on medicine, food, and raw materials,
while a higher rate often; fifteen, or twenty-five per cent is imposed on intermediate or finished
goods. In addition, the Government has instituted an excise tax on industrial inputs and a
production tax on local manufacturers to create a level playing field between imported goods
and domestically produced counterparts.
1. Aden free Trade Zone
Until the-closure of the Suez Canal for eight years since 1967, the Port of Aden was not
only a regional service and distribution center for the- Mediterranean region, but also the
world's fourth largest port with the capacity to handle 6,300 ships annually. However, it lagged
behind during the
1970's and 1980's when neighboring countries in the region generated substantial oil
revenue and, equipped with modem facilities for handling containers, entered into the
transshipment business. While these competitors became established as regional cargo centers,
the Port of Aden's operational capabilities remained at the level of 1960's due to a lack of
investment capital.
As one of export promotion measures, the Government passed the Free Trade Zone Law
No. 4 in April 1993, and designated 170 square kilometers of land in Aden as the first free
trade zone in the country. The Multipurpose Terminal was constructed under the supervision of
the Yemen Port Authority. This first alongside berths for large dry-cargo vessels in the port's
history allowed Aden to offer container transshipment services.
Being in a prime lo cation to offer container relay services, the Port of Aden steadily
grew, measured in the number of total ship calls and the tonnage of bulk, general and
containerized cargoes. Its container throughput volume almost doubled from 1994 to 1997. The
Terminal not only generated valuable foreign exchange earnings from its transshipment
services, but also served to reduce the cost of imports to the country, such as raw materials
required for construction and other industries, as well as foodstuffs.
Expanded operations in the Free Trade Zone would contribute further to reducing ocean.
freight rates and lowering the cost of commodities through an increased frequency of service
and a larger volume. Aden's potential to restore its former position as a major service and
distribution center seemed promising because of its strategic location, dry climate, clear
weather, and ideal geography for a harbor. Thus, in November 1995, a concession agreement
was approved to construct and operate a new container terminal and industrial development
zone.
The Government signed a contract with a foreign joint-venture company to construct the
Aden Container Terminal (ACT), and dredging commenced in the North Shore of Aden Harbor
in April 1997. Furthermore, under a terminal management contract signed on October 21, 1997,
on a twenty-year build -operate-transfer basis, the Port of Singapore Authority Corp., a private
enterprise, took charge of managing and operating the ACT. The project of more than US$ 450
million investment aimed to have the Terminal's first two berths operational in March 1999.
The first phase of the ACT itself is estimated to have created 500-1,000 employment
opportunities to local people, suggesting a relatively small impact. However, the significance
of this step should be recognized in its potential to expand to the second and third phases as
well as the development of an industrial zone, which may create 10,000 to 20,000 jobs in the
future.
34
3. Privatization
A major component of the structural adjustment of economic reform often demands the
government's withdrawal from most of the production and services aspects of the economy
through privatization of public sector enterprises. Priority should be given to rebalance public
and private sector roles in the economy, promote greater efficiency in the allocation and use of
resources, improve quality of the services and products, and accelerate private-sector-led
growth and investment by providing better business opportunities. In addition, successful
privatization would not only generate one-time budgetary revenue but also halt a continuous
drain on the national budget.
As part of its comprehensive economic reform, the government initiated its own
privatization programme in early 1995 when Cabinet Decree No. 8 broadly defined the general
principles and guidelines for privatization. The Government's objectives were to disengage the
State from the productive sector; reduce the financial burden on public expenditure; promote
widespread private share ownership; and reincorporate the maximum number of public
enterprise. employees in the private sector.
To achieve these objectives, the. Government set up a Technical Privatization Office to
supervise the privatization process based on certain regulations and guidelines. The initial stage
of shifting public enterprises to a financially self -supporting basis included granting them the
pricing, hiring, and managerial autonomy. It was also in a plan of action to gradually phase out
budget transfers to public enterprises and to settle their arrears. By year 2000, the Government
aims at privatizing about 70 per cent, measured in terms of employment, of the existing 212
public enterprises. The programme gained initial momentum by focusing on the privatization of
smaller enterprises in the tourism sector and the return of nationalized farms to their original
owners.
In late 1997, the Government requested IDA support from the World Bank. The proposed
support project consisted of three components: (a) an institutional support component that
provides technical assistance services and training for the technical privatization office and the
concerned ministries managing the project; (b) a transactions component that provides legal
and financial advisory services for the preparation of the sale of majo r enterprise assets, and
consulting services to help address any associated policy and regulatory issues; and (c) a
programmatic transactions component that provides assistance for the preparation of the sale of
smaller assets.
The new phase focuses on exp anding the country's institutional capacity for privatization,
accelerating the privatization of larger public enterprises as well as smaller ones, and attracting
non-local investors, both Yemenis expatriate and foreigners, into the process. The major
enterprise considered for privatization were Yemen Air Transport Sector, Yemen Surface
Transportation Sector, Yemen Cement Company, Yemen Drug Company, Yemen
Telecommunications Sector, and Aden Refinery. In addition, the Ministry of Electricity and
Water announced its support for private power generation in Yemen, and wants to add 1,400
megawatts of capacity to the next ten years.
(e) Domestic resource mobilization
The moderate growth of the economy has coincided with unfavorable political and
economic factors along with large economic imbalances. Investment and its relationship with
savings are considered to be one of the most important determinants of economic growth.
Furthermore, the domestic resources gap reflects the existing gap between the volume of
domestic savings and that of the necessary investments to achieve growth targets. The extent of
the gap depends, to a large extent, on the goals that Government seeks to achieve, and hence
the volume of necessary investments for achieving the goals. The rate of savings depends
largely on consumer behavior, public infrastructure, and investment conditions as well as on
35
supportive economic policies. The rates of savings and investment in country reflect a
structural imbalance embodied in the weakness of productiv e capabilities and high
consumption propensities in -society as well as unstable conditions that prevailed in the period
1990-94, and which did not encourage stimulating investment.
As table (19) shows, the resources gap reached its peak in 1993 at 30.9% of GDP
equivalent to five times its ratio in 1990. This rise is due to the significant increase in total
consumption compared with a moderate growth of total investment. Private consumption
played a key role in the increase of total consumption since it mounted to 90.2% of GDP in
1993.
The return of a large number of emigrants caused accelerated growth of consumption
expenditure. Moreover, increased liquidity in the hands of individuals, whether resulting from
savings in or as a consequence of remittances of Yemeni labour during the past two decades,
has contributed to boosting consumer propensities.
During 1993 to 1997, the situation improved with the reduction of total final
consumption to 77.3% of GDP in 1997 as a result of contracting both public and priv ate final
consumption. It is also noticed that the rate of investment expenditure to GDP remained stable
during 1995-96 in spite of the decline of the total investment growth in constant prices to 4.4%
in 1996 compared to 22.3% in 1995. In both 1998 and 1999 the rate of total consumption remain
stable, they were 82.4 and 82.7 respectively. Also the rate of domestic .saying .was almost stable
during 1998-1999.
These changes indicate that the economic stabilization policies which took place since
the beginnin g of 1995 have targeted reducing the' imbalance between total domestic
expenditure and output (income) through basically pressuring domestic expenditure and
specifically private consumption, but not pushing for increased production.
TABLE (19)
RESOURCES GAP AS A PERCENTAGE OF GDP (1990-99)
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
Gross consumption
92.7
106.2
1103.7
110.8
199.4
79.3
84.5
77.3
82.4
82.7
Private
74.8
86.5
83.4
90.2
78.1
81.3
70
61.1
67.6
68.8
Public
17.9
19.7
20.3
20.6
21.3
16.5
14.5
16.2
14.8
13.9
Gross investment
13.2
16.3
19.4
I 20.1
22.5
25.4
25.4
127.7
32.3
23.8
Gross demand
105.9
122.5
123.1
130.9
121
123.2
109.9
105
115.2
106.5
Resources gap
5.9
22.5
23.1
30.89
21.9
23.2
9.9
5
15.2
6.5
Exports
14.6
14.2
I 12.6
15
I 19.1
124.9
40.1
35.3
27.8
36.7
Imports
20.5
36.7
35.8
45.9
37.9
48.1
49.9
41.4
43.0
43.1
7.3
-6.2
-3.8
-10.8
0.6
2.2
15.5
22.7
17.65
17.30
Item
Domestic savings
Investment
Investment Law No. 22 of 1991 was issued for cite purpose of promoting and regulating
the investment of Yemeni, Arab, and foreign capital "within the context of the State's general
policy and the goals and priorities of the national economic and social development." Under the
Law, foreign investors, Arabs and non-Arabs, are given the same rights as of locals, including
100 percent ownership of projects, with no conditions of local labour requirements, and no
controls on capital flows, and benefit from a series of incentives. For example, a project
licensed under the provisions of the Investment Law was exempted from all types of customs
duties and taxes for fixed assets imported to establish, expand, or upgrade its operation during
36
the period specified in the license. Upon commencement of production, a licensed project was
also exempted from various taxes such as profit tax, real estate tax, stamp tax, business practice
tax, other taxes levied on capital, and income taxes imposed on interest on loans and dividends
related to the project.
In addition, customs duties were increased on the "imported end-production commodities
which are comparable to locally-produced commodities" in order to protect local production for
a period not exceeding three years. On the export side, any existing project exported or part of
its production was entitled to exemption from all fees and taxes levied on exports, the
exemption from production excise or other taxes on exported goods and services produced by a
project licensed under the Law, exemption of 50 per cent of tax payable on profits earned from
export revenue, and the recovery of all customs fees and duties paid on imported inputs
included in the portion of production exports.
Under Article No. 33 of the Investment Law No. 22, a General Investment Authority
(GIA) was established in 1992 as an independent juridical entity with autonomous financial
status. The GIA executes the provisions of the Law and supervises investment projects. Its
functions defined in Article No. 34 of the Law include: (a) to receive and appraise license
applications; (b) to issue permits, approvals, and certificates related to project operations and
the rights, exemptions, and benefits accorded to them; (c) to obtain, on behalf of project
sponsors, all approvals required for their implementation; (d) to assist projects in dealing with
other governmental agencies concerned in order to overcome any impediments or obstacles
facing project implementation; (e) to study the laws, regulations, and decrees related to
investment in country; as well as . regional and international agreements dealin g with
investment matters and make appropriate proposals; (f) to make necessary appraisals of
problematic projects to determine their actual performance and benefit to the national economy;
(g) to conduct research related to investment as well as the problems and obstacles hampering
effective promotion and orientation of investment; (h) to identify investment opportunities and
viable projects in the country and promote them in likely investor circles within and outside the
country; (i) to collect and disseminate vital information regarding the investment climate in the
country to potential investors; (j) to keep a record of invested capital and review it! valuation
upon disposal of liquidation for re-export or transfer abroad; and (k) to approve a transfer of
net profits and re-transfer of capital abroad based on the results of examining the project's
financial position and verifying the compliance by provisions of the Investment Law.
Law No. 14 of 1995, amended the original Investment Law to reduce governmen tal
involvement beyond that envisioned in 1991. Moreover, in early 1996, investment prohibition
applying to certain industrial sectors were eliminated. Investment licensing is also to be
eliminates later, except in those instances where investors obtain concessional tax and import
duty treatment.
The Government, with the technical assistance from the IMF and the World Bank,
undertook a comprehensive review of the investment incentive structure and added an even
wider array of amendments in 1997. As a result, governmental involvement in investment
decisions was further reduced to assist the setting up of projects, with the role of the GIA
charged from that of an approving agency to -one of a more facilitating nature, with its focus on
investment promotion. Moreover, under the new set of regulations, not only incentives to
potential investors were increased through additional tax exemptions, but also the time required
for a project approve declined from 45 days to no more than ten days.
Table (20) shows, by sector the profile of 243 projects that were licensed during 199;
Although the Investment Law provides identical benefits to all sectors, the distribution of
project across sectors is quite uneven. More than 50 per cent of them, measured in number,
were industrial projects, followed by service-sector projects, which made up 25 per cent of the
total. In terms c investment costs, the service sector was the largest, registering YRls 27.3
billion or 44 per cent c the total, exceeding the industrial sector total of YRls 23.0 billion. The
licensed projects as a who were expected to create 10,177 jobs, the majority of which were in
37
the industrial (41.5 per cent service (39.2 per cent), and tourism (12.4 per cent) sectors. Despite
the country's long coastal fin fishery has not attracted investors' attention. In order to exploit
the country's growth potential bas: .on its rich coastal waters of the Red and Arabian Seas, more
concentrated investment promotion must be strategically planned and carried out with special
focus on the fishery.
Governance
The Republic of Yemen was proclaimed on 22nd of May 1990, as a result of the
reunification between the tow previous parts (North and South).
The Unity Agreement, which gave birth to the decoration of the new state, provided inter alia - for the coming into force of the Constitution Referendum was held on 16th May,
1991, where 93.3 of those who voted said "YES". That Constitution remained in force until 1st
October 1994, when a number of significant amendments were approved by parliament. Where
they aimed toward a more democratic government. According to the constitution, the Republic
of Yemen is an Arab and Muslim country. Islam is the state's official religion and Arabic is its
official language, Islamic Shariah is regarded as the source of all legislation's. Article 4 of the
constitution indicates that, "the people are the source of authority. They exercise this authority
either directly through referendum general elections; or indirectly through the legislative,
executive and judicial authorities and through democratically elected local councils".
Article 5 is concerned with the political system of the' state. It states that, the Republic's
political system is based on political pluralism-to facilitate the peaceful transference of authority.
The law regulates the rules and procedures that are relevant to forming political parties and
organization and the practicing of political activities. It is strictly forbidden to exploit an official
status or public funds for the narrow interests of a particular party or political organization.
Article 7 of the constitution, that national economy is based on the freedom of economic
activity in the best possible way to serve the interests of individuals and society. It also beholds the
principle of fair and honest competition amongst various economic sectors (private, public, mixed,
and cooperative). Private property, according to the constitution, must be respected and protected.
According to article 40, "all citizens are equal in their rights and public " It also states that, " every
citizen has the right to participate in the political economic, social and cultural life. The state
guarantees freedom of expression and opinion through speech, writing and / or photography."
Article 24 allows for equal political, economic, social and cultural) opportunities for all
people. The constitution regards the family as the basic building block of society. The family
must be held by the principles of-religion, morals and patriotism.
Women are refereed to by article 31 as the beloved second half of men who have their
rights and duties. Also, the citizen has the right to resort to courts to protect their rights and
legal interests. Women are given their full rights on par with men by this law. They are allowed
full and faire opportunities to vote, and to committee themselves as candidates for parliament.
Article 5 state that, the supreme committees will take all appropriate measures to encourage
women to exercise their voting rights and will set up women's committees which will be
entrusted with registering the names of female voters in the voting registers and verifying their
during the balloting process."
On 27 April 1997, the country held its first democratic elections since civil conflict in
199-4 and the second since unification in 1990. The elections were considered reasonable and
free by international observers and were seen as a substantial step towards fair democracy
building. The General People Congress (GPC) won a clear majority of parliamentary seats.
Also in 1999, the first presidential election was held.
Since the 1997 elections, government reform has been an important issue for country's
democratic institutions. The president has established a consultative council to advise the
president on such matters as democrat building, NGOs and other social questions. High on the
38
agenda of the newly- elected parliament are the issues of decentralization and civil service
reform. A draft law on local Administration was proposed in 1977, which established elected
councils at the district and governorate levels, authorizes the collection of a selected set of tax
revenues, and delegates control over local-level development activities. This proposed law
resulted in a greater role for private sector and NGOs in carrying out responsibilities related to
service delivery.
One of the obstacles that still hinder the development and the consolidation of political
practice in Yemen resides in the fact that the society still suffers from high illiteracy. Such
obstacle stands against raising political awareness in general and political participation in
particular.
Political participation in any society must take place through institutional frameworks
that constitute legal channels for political activity. These frameworks are still in the early
stages. The political participation process is also limited to the concept of political and social
mobilization without reflecting real and effective participation. Thus, restraining political
participation to practicing right of candidature and right of voting would not accomplish
sufficient interest in all aspects of the political, social and economic life.
In order to encourage and consolidate the role of political participation in society, the
Government is seeking to eliminate these obstacles that constrain the political participation
process. This can be achieved through reducing or eliminating centralization in the
administration, which hinders the cohs6lidation of the democratic path, Implementing
decentralization and issuing the local decentralization.
Women
Women during the past 10 years have become an effective and interactive partner in all
aspects of live including the political activities. Woman has an important role in all developing
activities through her interactive in building the society. In addition, to her participation in
enhancing and improving the democratic process, whether in the parliament elections or
through her role in the political life and in all social activities such as political parties, Unions
and Associations.
The latest figures in the education field show that the significant improvement in the
numbers of girls in the basic education, where it increased the females number from 516
thousand in 90/91 to 930 thousand in 1999/ 2000, with annually growth rate about 19%.
Also there has been an increase in girls' number in the secondary school, it increased
from 20.000 thousand in 90/91 to 94 thousand in 99/2000. Also in the teaching field, where the
number of females teachers increased from 9,869 in 90/91 to 29,610 in 99/2000, despite the
fact that, it does not exceeds 20% of the total number of teachers in the year of 99/2000.
The constitution has granted women the right of political participation at equal footing
with men. The amended constitution confirms, "All citizens are equal in rights and in public
duties." Hence, women registered significant presence in the parliament elections of 1993 and
1997. However, of the twelve political parties and organizations that participated in the 1997
election, only six of them nominated female candidates to the election.
In respect to women's membership in political parties and organizations, and despite
political pluralism in Yemen, women are still in low profile. The importance of the role of
women and the extent of participation in public life varies from one party to another, as well as
from one governorate to another, reflecting the disparity between the legal and the social
situation of the women. Legal regulations and rules guarantee women equal rights as men.
However, they tend to collapse in front of the prevailing conditions reflected in the social
traditions and family attitudes that limit any broad participation of women in most aspects of
life.
39
These requisites reflect the traditional perspective of the role of women in society that
still prevails in the minds of many people. Therefore, there is an evident disparity with respect
to the posture on the rights of women. It remains one of the central issues on which positions
converge and diverge. The concept of women's rights is a relative concept that varies with
changing conditions, situations, and interpretations. Hence, political parties vision and
programs have reflected secondary roles for women. This was evident from the eagerness of
parties to ensure wider women participation during voting despite a limited female candidature.
The percentage of women registered in the 1997 elections reached 28% compared to 16%
in the elections of 1993. Twenty-three women applied for candidature in Parliament in 1997 of
which 9 were party candidates. Seventeen candidates fought the election battle but only two
became members of parliament. In 1993, 48 women presented their candidature, of which 42
went through the election process. Only two became members of parliament
In spite of what women have achieved during the past 10 years, the Government is
aiming to wider the role that should be granted to women's organizations and associations and
in all other economic activities in order to achieve integration of women in the path of
development. In other words, the government's policies should be concentrated on the
following: More equality between women and men in all aspects of lives:
1.
Increase the percentage of women participation in the labour force.
2.
Increase the participation of women in the medium and small size projects.
3.
Increase more training and vocational programs, particularly in planning, accounting,
financing, distribution, marketing, advertisements, management ... etc.
4.
More participation in political activities.
Environment
Yemen, like many other developing countries, has witnessed economic and social
growth without considering the environment aspect. Hence, and due to institutional and
legislative shortages, it currently faces several environment related problems, whether at the
overall economic level or at the sectored level. Urban growth has accelerated in Yemen,
increasing pressures on the limited natural resources to the extent that surpassed the authorities
capacity to administer resources in a sound environmental way. Cities currently encounter
several problems, of which the most important are:
•
Water scarcity and its haphazard depletion.
•
Severe shortage of sewerage systems.
•
Inefficient collection and disposal of solid waste.
•
Weak and chaotic urban planning and lack of balanced urban development.
As for rural areas, in addition to some shared problems, the increase in the size and
momentum of natural resource exploitation represented in over herding, wood-cutting, and soil
degradation have an effect on the environment.
This situation has seriously led, since the beginning of the nineties, to increase
government's concerns, which have materialized in the establishment of the Environment
Protection Council in 1990 as well as in issuing the environment protection law in 1995.
Moreover, environment issues have been incorporated in the First Five-Year Development Plan
(1996-2000), in the national population strategy of 1991-2000 and in the Second Five-Year
Development Plan (2001-2005). Tile mass media has also started to participate in awareness
campaigns on environment issues. Also the Scientific Institutions are initiating research
relating to the environment. Similarly, some popular initiatives have emerged through nongovernment organizations concerned about environment protection.
40
(f) Human Resource Constraints
Population Pressure on Natural Resources
Population increase in Yemen creates great pressures that undermine the achievements of
the development programs. It also creates pressures on sources of natural wealth and causes
several environment problems. Hence, the significant depletion of underground water and the
decline of its quality are considered normal consequences of the population increase and of the
diverse activities emanating from it. Moreover, the population density has left its prints on land
through the excessive use that affects its quality. In rural areas, the depletion of plant coverage
due to over herding and woodcutting for fire or construction use, and in quantities that exceed
the planting rate creates a hazardous environment situation.
Also, the demand for food and its local production is positively related to the rise in the
population growth rate. According to the current growth rate, the responsibility lies on
agriculture, animal and fish wealth sectors to undertake the difficult mission of doubling output
during a relatively short period not to exceed 19 years, in order to maintain the current levels of
self-sufficiency and to provide food for every increasing mouths.
Poverty
Poverty in the country almost doubled between 1992 and 1998, with the number of
households below the "food poverty line" rising from 9% to 17% respectively according to the
Household Budget Survey. This is attributable to the depreciation of the local currency, subsidy
elimination, and other external factors (influx of returnees and refugees, suspension of foreign
aid, impact of regional conflicts). By adding food, clothes, housing, education, health and
transport into an "upper poverty line", the percentage of households living in poverty rose from
19 to 33 over the same period. Hence, poverty is becoming more widespread amongst the 18
million people who live in country's urban and rural areas.
Also, social indicators reflect very low human development. For example, 44% of male
and 72% of female are illiterate. Furthermore, 45% of pupils enrolled in the first grade drop out
before grade nine. The situation of health is equally inadequate, where only 55% of the
population has access to health services. The main findings of the 1998 Household Budget
Survey can be highlighted in the following characteristics:
•
•
•
•
•
•
•
Government employees have higher incidence of poverty than private sector's
employees, which is due to low government wages and to overstaffing in this
sector.
Large household size (6,8 members on average) is perceived as the most important
factor in explaining why families are poor, thus supporting the argument
emphasizing the strong positive correlation between household size and poverty
prevalence.
the proportion of poor households who are inactive amounts to 16.3% which is
high compared to other Arab Countries.
Poverty has been always higher in rural areas, and rural household is at 50% higher
risk of being poor.
Female-headed households are more likely to be poor than male-headed household.
A female-headed household implies a higher risk of being poor by about 20%.
Poor people are more likely to be employees or working within a family activity
compared to the non-poor who happen to be either employers or self-employed.
Family ties, kinship relations, and tribal links are strong, and are seen as important
e lements of the social safety net. Thus, more consideration should be directed to
enhance such positive role.
41
Determinants of poverty
Poverty is not the outcome of the economic process alone, rather it is the result of
economic, social, cultural, and political factors that interact to either alleviate or deepen the
severity of the phenomenon. The major underlying causes of poverty in Yemen can he seen in:
Population growth: The population growth in Yemen is among the highest in the world
and the total fertility rate (5 children per woman) is more than double the world average. Thus,
population doubles every 19 years. Also, more than half th e population is less than 15 years of
age leading to a high dependency ratio. Also, about 76% of the population lives in rural areas,
of which 80% reside in communities of less than 500 people, hence making it very difficult and
costly to provide essential services
Scarcity of Water: the country's most dependable source of fresh water is the net
precipitation. Thus, per capita water supply is about 2% of the world average and 85% below
the amount needed for domestic use. Although agriculture depends mostly on rainfall, ground
water has reached a state of over-exploitation as a result of over drilling. Moreover, the
exhaustion of groundwater will similarly affect the major cities, including the capital Sana'a.
Moreover, while the total land area of the countr y is estimated at 555,000 km2 (excluding the
Empty Quarter), there is limited land for agriculture production, with only 1.6 million hectares
(2.9%) of cultivable land, and 2 million hectares of marginal land (3.7%) of the total area.
Insufficient Infrastructure: where less than 10% of the road network is paved, the network
does not reach a large proportion of the population, and most of it is in poor conditions.
Moreover, electricity from the public grid reaches only about 35% of the population, only about
40% of the population has access to safe drinking water, and telecommunications penetration is
still very low outside major cities.
Inefficient Civil Service: The over-centralized nature of governance and public
administration has resulted in the marginalization of regional authorities and led to the
underdevelopment of their capacity to plan and implement social and economic development.
Moreover, absence of accountability and transparency, created an - environment that is nonconducive to private sectors investment.
The Returnees and Refugees: The influx of Yemenis returning from the Gulf Countries
especially after the Second Gulf Crisis in 1990-91 as well as refugees fleeing War and unrest in
the neighbouring African countries throughout the 1990s has created additional burden on the
ailing economy. The majority, of the returnees were unable to bring back their assets hence
were impoverished, and many of them have not been able to reintegrate in to the society. Also,
such influx created large demand for housing and infrastructure, education and health services,
and employment opportunities.
Gender Perspective: Illiteracy, immobility, lack of control over fertility, limited access to
participation in decision-making, and ignorance about their legal rights; in practice all have
reduced the quality of life for women, as well as their potential contribution to raising
standards of living.
Qat related Issues: Although qat is a major source of rural income, qat plantation
consumes between 50-60% of water used for irrigation, which aggravates the water problem.
Moreover, pesticide misuse associated with expansion in qat plantation has been increasing
tremendously during the last few years with its adverse effect on the environment.
Government commitment
The government is committed to addressing the underlying causes of poverty and
alleviating its effects through several nation-wide programs. There is also an ongoing effort to
pull together all anti poverty activities into a National Action Plan for Poverty Eradication,
42
(NAPE), which would be most explicit in terms of objective policies, institutional and resource
requirements, as well as on the implementation modality.
The implementation of the First Five-Year Plan (FFYP) for the years 1996 to 2000
reflected the shift towards a more pragmatic and development approach in dealing with
poverty, as well as highlighted government's social development priorities. The overall
objective of the plan was to generate and distribute economic and social development
opportunities among governorates in order to reduce the current wide disparities.
However, the FFYP was overtaken soon after its formulation by a comprehensive
Economic, Financial and Administrative Reform Program (EFARP), which have been
implemented by the government since early 1995 with the support of the World Bank and the
INNIF as well as the assistance of a broad range of international donors. The EFARP
exacerbated the constraints on social development, overwhelmed the traditional/informal social
welfare mechanisms, and led to the emergence of poverty from a household phenomenon to a
societal problem. Policies and measures adopted to counteract poverty reflected a combination
of ongoing efforts to reduce poverty in the long-term, primarily by means of achieving high
economic growth, and measures intended to mitigate the short-term adverse impact of the
EFARP on the poor and other vulnerable groups.
Moreover, a National Committee for Social Safety Network (NCSSN) chaired by the
prime minister was established in June 1998. The main responsibility of this entity is to
formulate pro-poor policies, and to ensure that relevant authorities implement them. Moreover,
and in response to the need to prepare a PRSP which ought to reflect views and aspirations of
the various segmen ts of the society, the government, by means of decree No. 14 for the year
2000, formed (i) a steering committee presided over by the minister of finance and membership
of both ministers of planning & development and of insurance & social affairs to oversee the
preparation of the interim PRSP (IPRSP), (ii) a technical committee with representation from
the relevant line ministries entrusted with the preparation of the IPRSP under the supervision of
minister of planning & development.
The regular publication of official reports monitoring poverty in Yemen, which began in
1998, is an indication of government commitment to address the problem. Hence, the ministry
of planning & development through the Central Statistics Organization (CSO) is undertaking an
ambitious national poverty alleviation survey. In addition, the government has already
embarked on preparing the Second-Five-Year Plan (SFYP).for economic and social
development covering the period 2001-2005. The plan's overall objective is. centered on
generatin g economic growth, creating employment opportunities, and ensuring social stability.
Social Services Provisions
Education
The constitution of the country states that education is a right for all citizens and shall be
guaranteed by the government through building cultural and educational schools and
institutions. Even though literacy rates have improved over the years, illiteracy is still very
high in Yemen. There are differences in rural and urban illiteracy rates (64 %vs. 34 %
respectively) as will as major differences between genders. These gender discrepancies are also
reflected in the actual school enrolment rates. Furthermore, these are significant variations
among governorates when it comes to gross-enrolment ratios (GER) for basic and secondary
education. 45 % of pupils enrolled in the first grade do not complete the basic education cycle,
and the drop-out is greater in secondary schools. Public expenditure on education represented
6.0 % of GDP in 1999.
There has been direct correlation between the construction of new schools and the
increase of literacy rates. Over the last twenty years, the number of primary schools tripled,
43
secondary schools are, said to have almost increased twenty-fold. Furthermore, the religious
institutions provide parallel education to the official education SYSW111 III the country.
The remaining high rate of illiteracy rate does however confirm that there is still a great
need for improving the quality and quantity of education. On the University level, 90 per cent
of graduates are social science student even though science, engineering, and medical faculties
exit. As a result, vocational training programmes have become a priority also in the aid
program of donor countries.
Health
Yemen has experienced a relative improvement of health services and life expectancy has
increased over the recent years. In 1997, the overall life- expectancy rate increased from 57 to
53 years.
The rate of mortality is one of many indicators of any country. Infant mortality
(estimated at 81 death per 1000 birth) has declined considerably in the last decade. This rate is
still higher than the low - income country average of 64. The major causes of morbidity and
mortality in Yemen are communicable diseases, hence preventable.
The delivery of health services is hampered by the fact that about 77% of the population
lives in highly scattered communities, which in addition often cannot afford commuting costs
to health care facilities. Only 45% of the population has access to health services (25% in rural
areas). Over the past two years, approximately 150 private clinics have been opened.
Emergency medical services practically do not exist, as there are no public ambulances
services. The population per doctor is more than 5000 people per doctor. The expenditure on
health is 1.4% of GDP in 1999.
(g) Industrialization and technological development
Industrialization in Yemen is not a successful sector as it should be. Manufacturing
represents 10% of GDP (including oil refinery), 4% of labour force. During the last decade,
investment increased in both public and private sectors, where most of this investment came
from expatriate transfers from abroad.
The consumption goods industry, particularly clothes and food, represents a big part of
the added value in this sector. Due to the big local market and protection policy, these
consumption goods industries gained large profits. The consumption of the textile industry is
low 6.6% of the total added value industry goods; chemical industry (including oil refinery)
realized a large growth rate reached 20%, which is the highest rate between all different
branches. Building material industry kept its rate at 21.1%, but wood industry and its products
lost part of its contribution at 1995 when its rate reduced to 4.7% due to the stagnation in the
building sector.
In general, one can say that industry sector is not successful one, and this may be due to
the following reasons:
1.
Low investment due to the unsecured environment for investment attractiveness.
2.
The weak infrastructure such as power and water supply, weak net communication
and transportation such as roads, transport means, particularly, in the scattered
areas.
3.
The low Per Capita income ($343) that made the local markets an attractive for
large production.
4.
Most industry projects depend on machineries and raw materials from abroad,
which make this industry depends on external factors such as the prices of the
machines and input.
44
5.
Labour force is characterized by untrained and unskilled, which means labour is
not able to work in new industries and modern technologies. Thus, many industries
import foreign skilled labour.
Thus, these factors impede industry/ sector and led to high cost of production, which
resulted to non-competitive prices comparing to the world market prices.
The government policy is aiming to develop and help industry sector especially, private
industries and this required:
1.
2.
3.
4.
5.
6.
7.
8.
more investment should be attracted to the industry sector.
Introduce more information about industries in the country.
Create a peaceful environment for investment.
Develop and complete the basic infrastructures for industries
Attract local and foreign investment in infrastructure projects, since the
government resources are limited
Build big commercial centres and invest in institutions for training.
Encourage medium and small industries, especially, outside the big urban areas.
Strengthening the relations between different industries and National economy
sectors such as agriculture.
IV. EXTERNAL OPPORTUNITIES AND CONSTRAINTS
(a) Official development assistance (ODA)
The total Official Development Assistance (ODA) disbursed in 1997 was US$ 633.65
million. This constituted a 41.3% increase over 1996. This increase is mainly due to the EEF
and the SBA from the IMF and the World Bank, although many of the bilateral donors
increased their support to Yemen in 1997.
There has been an increase in aids from the United Nation System, which increased its
disbursements by over 73% in 1997, and contributin g 76% of the ODA. The IMF disbursement
increased by 117%, to US$ 304.5 million and the IDA by 39.5 % to US$ 145.7 million. The
non-UN system multilateral donors decreased their disbursements in 1997 by 56.3 % compared
to 1996, but still represented 5% of ODA. Bilateral donors contributed US$ 116 million, 21.5%
increase over 1996 and representing 18% of ODA.
The main donors were Netherlands (US $11 million), Germany (US$ 27.5 million), Japan
(US$ 25.4 million), AMF (US$ 21 million), WFP (US$ 11 million),UNDP (US$ 8.8 million),
EU( US$ 8.5 million) and France (US$ 7.3 million).
Of the United Nations system, the largest donor is the lMF, contributing 62% of total UN
assistance to Yemen, followed by IDA (30%), WFP (2%) and UNDP (1.8%). It is expected that
the UN system will continue to have the leading role in providing assistance to Yemen over the
next 5 years.
The shift to a programme approach in the current, programme cycle (1997-2001) has had
major implications for resource mobilization in three important ways: a) a substantial increase
in the level of funding; b) flexibility in funding arrangements; and c) promoting financial
accountability.
Resource mobilization for the implementation of national programmes and PSDs stands
out as a major achievement of the programme modality in the country. In the previous cycle
(1992-1996) total programme resources amounted to $30.391 million while the current level of
programme support stands at $80.3 million. These funds have been raised of the basis of
national programme frameworks to which donors and the government has pledged support. The
government has pledged: $2.5 million for the national programme on poverty alleviation; $1.2
45
million for water resources management; and about $ .5 million to environment. This has had
an immense benefit in terms of directing funding support to areas of national priority such as
water and poverty alleviation a systematic and sustained manner. Previously, funds would be
allocated to ad-hoc projects where once funding support ends there is no clear cut strategy for
sustainability of project activities both institutionally and financially.
The effectiveness of the Programme Approach in coordinating donor support is another:
value added that generates funding support for the national programmes. The case of the water
programme is particularly notable. The programme on Sustainable Water Resources
'Management is a good example of how the process can create partnerships at all levels and
lead to cost sharing. The Dutch are key partners in the implement: Lion of the national
programme on water resources. They participated in the formulation phase and continue to be
full-fledged stakeholders in other phases of the programme. Recently they have expressed an
interest in cost-sharing additional components of the national programme. Similarly, other
bilateral such as the Japanese and the Italians have given funding to the Poverty Alleviation
programme. Specifically, the Italians are committing S~00.000 to the subprogramme on the
Socio -economic Development for Soctora Islands and the Japanese are to support the subprogramme on National Programme for Productive Families for a total amount of $400,000.
(b) External Debt burden
Another major source of balance of payments disequilibrium is the country's huge
external debt. The country's total external debt stock at the end of 1994 amounted to US$ 8.2
billion, equivalent to twice the country's GDP. Of this amount, nearly half was in arrears. The
size of debt relative to GDP declined in 1995 but still remained substantial at US$ 8.7 billion,
which was 163 per cent of GDP. The external debt continued to increase, reaching around US$
9 billion, more than 180 per cent of GDP in 1996.
. The Russian Federation has been the country's largest bilateral creditor with
approximately US$ 5.7 billion debt in 1994 that made up more than two-thirds of the country's
total debt. The amount owed increased to US$ 6.4 billion by the end of 1995, US$ 3.9 million
of which was outstanding arrears. The Russian Federation accounted for about 65 per cent of
total debt, and for about 90 per cent of total amortization and interest arrears. The outstanding
debt owed to the Gulf States was estimated to amount to US$ 1.6 billion in 1995.
In principle, the official policy of the government is to remain current on loan payments
to multilateral and bilateral creditors and other suppliers of credit. Debt service burdens on
country had been substantial. External debt service obligations were typically close to or more
than one-third of the Government's budget revenue. Despite the significant progress achieved in
domestic economic stabilization immediately after the implementation of EFARP began, the
country's external economic performance lagged behind and its position remained
fundamentally weak. Given the scarcity of foreign exchange resources, the country fell into
arrears. The inability to service external debt obligations continued to erode the country's
credit-worthiness and undermine donors' confidence.
The reform programme seeks to avoid compounding this difficult situation through a
prudent external debt management policy; no increase in short-term debt is to be incurred on a
net basis; and the contracting of non-concessional medium or 1ong-term debt is to be strictly
limited. The reform programme also provided for complete elimination of the existing external
debt services arrears by the end of 1996 and the avoidance of any new arrears. In early 1999,
the CBY announced that the Republic of Yemen had met all international debt obligations for
1998 to a total of US$ 160 million.
Resolution of the debt problem in the context of reform would generally improve donors'
confidence and thus increased their support. In 1997, the Paris Club creditors agreed to some
restructuring and cut the country's burden by up to 67 per cent. At the same time, the Russian
Federation forgave the country 80 per cent of its debt and the accrued interest. Furthermore, the
46
Russian Government also signed an agreement to re-schedule the remaining 20 per cent of the
country's debt under the Naples Terms in 1993, which allowed 67 per cent of outstanding debt
to be written off. Accordingly, the external debt of country was reduced. As of February 1999,
its total outstanding debt was US$ 3.2 billion, constituting 60 to 70 per cen t of GDP.
(c) The export sector
Performance of the External Sector
•
The deficit in the balance of payments reflects structural rather than temporary imbalance
in the economy. This structural imbalance is reflected in limited domestic goods that
enter trad e exchange (limitation of non-oil exports) due to weakness of the economy's
productive capacities. The rapid trade liberalization alone %with continued smuggling
has had a negative impact on domestic production.
•
The relative improvement in the current account and consequently in the balance of
payments is mainly attributed to a rise in the value of exports (quantitatively and pricewise) and to the relatively stable remittances of Yemenis working abroad.
The decrease in debt will have a positive impact on improving the balance of payments
and will provide resources to enhance economic growth. Yet, the balance of payments remains
in a critical position due to the structural imbalance between imports and exports, thus
requiring to obtain foreign resources (aid and loans) to support the economic reform program
and to build the export and production, which in turn, will help in providing a part of
productive investment and enhancing the productivity of labour force.
(d) Foreign Direct Investment
The Foreign Direct Investment (FDI) inflows to the country declined in 1994. Foreign
investors moved out of the country due to the militant conflict in the summer of 1994. The
negative impact lingered, resulting in the net disinvestments in 1995. Investors seem to be still
hesitant to come back as indicated by the second-smallest amount of FDI inflows to the country
in 1997. Over the past five years, FDI inflows to the economy have, in fact, declined by 97
percent.
The Government requested the Foreign Investment Advisory Service (FIAS), a joint
service of the international Finance Corporation and the World Bank; to conduct a survey of
investors in order to learn about their perceptions of the country as a potential investment site.
According to the FIAS survey results, investors found long-term business potential in the
areas of (a) transshipment service, container storage, and warehousing in the Aden Free Zone;
(b) infrastructure such as power, telecommunication, water, waste management, roads, sea
ports, and airports; and (c) renewable resource such as fisheries, food, and beverages particularly coffee, mutton, and honey. Tourism also attracted the particular interest of foreign
investors.
Despite this potential, however, potential investors have taken a "wait and see" attitude,
except in the petroleum sector where the investment decision is primarily based on the
availability of oil reserves and the exploitation costs. According
to
those
interviewed,
impediments to FDI inflows were perceived to lie in the following: (a) difficulties in the area of
governance and judicial foundations due to overlapping jurisdiction among different
governmental agencies, discretionary application of laws and regulation, under -paid and thus
unmotivated civil services lack of protection for property or contract enforcement; (b) seriously
out-dated and inadequate. investment law; (c) lingering restrictions on the financial sector and
the poor record of the judiciary and enforcement of judgments, and (d) a lack of education,
including basic literacy in the work-force, vocational training and management skills.
47
In addition, most FDI inflows are known to be recurrent. Therefore the country is faced
with a particularly difficult challenge of attracting first-time investors because of its very short
lack record as a host country to FDI. Thus, the Government may play a key role to facilitate
investment by providing basic information regarding the legal framework for business activity,
administrative procedures, resource availability, or business contacts.
(e) Vulnerability to Shocks
There are major internal and external events that caused the economic and social situation
to suffer great shocks in a short time period. First came the Gulf War of 1990, which brought in
its wake the return of about one million returnees from the Gulf States (particularly, from Saudi
Arabia and Kuwait). The all-important remittances from these returnees (estimated yearly at $ 1
billion) ceased, and most of them became unemployed and poor. In addition, donor interest in
Yemen stopped their large aid programs. Second Civil conflict in Yemen followed in 1994,
taking resources away from social and economic development. The civil conflict also damaged
much of the economic and social infrastructures of the country. The outcomes are: balance of
payments deficit, high inflation, large-scale unemployment and increasing international debt
which all led tile government to adopt a package of structural adjustment reforms with the help
of the INIF and the World Bank. These macro economic reforms required large cutbacks in
social services welfare and removal of subsidies for basic foods. The results of this program,
however, have been very successful.
The economy is heavily dependent on oil exports for income and foreign currency, and
thus vulnerable to fluctuations in the world oil market, which are beyond tilt country's control.
For example, due to a surge in world oil prices in 1996 through 1997, the oil export revenue of
the increased from 1996 to 1997. However, it has suffered tremendously from the plunge in oil
prices to a twenty-year low on average that began from late 1997. Moreover, the current LNG
market prospects are grim due to the global economic slow-down and particularly the recession
in potential export markets such as India and South-East Asian Countries. As a result, the joint
venture with France's TOTAL to start up a liquefaction plant has been delayed. The
Government is set to implement an austerity programme to weather through this down-turn.
Therefore, diversification of the economic structures essential in the long run.
Since the second Gulf War, traditional donors have not come back with the same level of
financial commitment as before. As a result, implementation of the reform has been hampered.
Also, the regional conflict, particularly in Africa Continent led to thousands of refugees to the
country. In addition to, thousands of the Iraqis and Sudanese.
Recently, the government is becoming increasingly concerned about the number of
refugees fleeing into the country from the Ethiopian-Eritrean conflict. There are about six
hundred refugees have entered Yemen since the latest outbreak of fighting. Twenty thousand
refugees are currently in Yemen, and it is estimated that one hundred thousand Africans are
living in the country illegally.
Thus, all these refugees add another burden to the country's hard economic conditions
V. THE PROGRAM OF ACTION FOR THE NEXT DECADE (2001-2010)
A.
The Program of Action is derived from both the SFYPD (2001-2005) and from the
Yemen Vision 2025, which both aim at moving Yemen from low-income group to
middle-income group with diversified economy and social development. This entails
raising Per Capita income from $349 in 1999 to $700 in 2005 and to $2100, at least by
2025, which means, it is being doubled every five years. Meanwhile, Per capita growth is
accompanied by diverstation of the economy and development of the social structure.
48
B.
The mission implied by Yemen's Vision 2025 is to provide Yemeni citizens better
standard of living and higher economic and social welfare, comprehensively and
equitably.
C.
The mission is to be accomplished through a comprehensive development strategy
relying mainly on four key factor stated briefly as follows:
1.
Development and upgrading of human resources as the dynamic factor for growth
and information technology economy. Thereby establishing human resource
development as the cornerstone for economic and social development.
2.
Diversification of Yemeni economic stature in order to move away from high
dependency on oil production and export to densification of income generation and
employment creation tlirou2h increasing agricultural, industrial, fisheries and
tourism shares in gross domestic Product.
3.
Improving investment attractiveness and competitiveness of th e economy in order
to be able to mobilize domestic private investments and attract foreign direct
investments and technologies, thereby, integrating with international economy on
the bases of combativeness and equity.
4.
Export led economy. In line with the new economic direction towards openness and
liberal economic and trade policies, it is essential to encourage export oriented
investments and economic activities.
Table (20) below shows the expected average real sectoral economic growth rates o f the
SFYP (2001-2005). The expected promising sectors arc; fishing grows by 20 per cent,
construction by 12.1, mining and quarrying by 10 per cent, restaurant & hotels by 9 per cent,
community, social, and personal services by 8 per cent, manufacturing by 7 per cent, and
agriculture and forestry by 6 per cent. The average total economy growth rate is expected to be
between 6.5-5.5 per cent.
TABLE (20)
AVERAGE SECTORAL REAL GROWTH RATES OF
THE SFYP 2001-2005 (%)
Agriculture and forestry
6
Fishing
20
Mining and quarrying
Manufacturing
Oil refining
Electricity, water & gas
Construction
Wholesale and retail trade
Restaurant & Hotels
Transport, storage, & commc.
Financial institutions
Real estate business services
10
7
5
7
12.1
7
9
6
7
7
Community, social and personal services
Government services
Oil sector
8
5
0.0
Total Economy Growth
5.5-6.5
Not included import's duties and Bank services charge
49
D.
According to the comprehensive development objectives of both the SFYP (2001-2005)
and the Yemen Vision 2025, the main goals of the Program of Action for the next ten
years can be determined as follows:
1.
E.
Achieving an annual rate of growth of real gross domestic product between 6.57.5% in order to be able to double Per Capita income every five years.
2.
Reducing poverty at a rapid pace so that poverty percentage could be reduced from
the present level of 33% to 15% by the year 2010.
3.
Encouraging massive investments in all sectors of the economy, especially, those
characterized by labor intensive technology, in order to create as much employment
as possible, thereby, reducing unemployment rate from the present level of 35% to
10% by the year 2010.
4.
Raising sectoral annual rate of growth within the range of 8% to 10% in order to
raise the aggregate economic growth rate, create employment, consequently,
approaching economic diversification.
5.
Preparing the economy to effectively and competitively integrates to the world
economy through strengthening economic integration locally, regionally, and
internationally.
All those objectives will be pursued though a concrete; set of macro and sectoral policies
summarized as follows:
(a) Fiscal Policy
The fiscal policy is viewed vital and decisive in facilitating achievement of mission
objectives within the first decade of the 21-century. The main components of the fiscal policy
could be stated as follows:
1.
2.
3.
4.
Mobilizing financial resources domestically and from abroad to secure required financing
for investments necessary to achieve targeted growth rates of income and employment.
Restructuring of fiscal budget components in favour of increasing investments in
infrastructure projects, health, and education services vis-a-vis rationalizing expenditures
on current activities, with serious emphasis to encores and to improve government
revenues from diversified sources.
Working seriously to reduce budget deficit and maintain it at no more than 3% of GDP.
Improving tax laws to ensure maximum motives and incentives to private sector to invest
and take incentives initiatives in economic activities in order to Increase economic
growth and create employment opportunities.
(b) Monetary Policy
The monetary policy is directed to enforce growth potentials through the following
measures:
1.
2.
3.
4.
Adopting expansionary monetary policy to encourage private investments to help achieve
growth objectives.
Maintaining macro economic stability in the monetary sector in order to keep inflation at
low level, stabilize exchange rate and increase foreign exchange.
Complete th e necessary legislative and executive steps to establish and operate stock
market in Yemen.
Encouraging establishment of specialized credit institutions to provide easy terms credits
to women, productive families, poor people, handicapped, rural activities, small
industries, and handicrafts.
50
(c) Foreign Trade Policy
In line with transformation of market economy and liberalization of economic policies, a
long with export promotion policies, the foreign trade policy is designed as follows:
1.
2.
3.
1.
2.
3.
4.
5.
6.
Encouraging and promoting economic activities with export potentials and
competitiveness, especially in agriculture, industry, fisheries, and tourism.
benefiting from bilateral and multilateral trade agreement along with regional free trade
zone arrangement to promote exports and attract joint ventures.
Finalizing required steps for Yemen to become a member in World Trade Organization
particularly it has been accepted as a watch member in World trade Organization.
(d) Agriculture Policy
The main aspects of agricultural of policy rely on the following:
Rationalizing water use and improving irrigation methods to limit irrational utilization of
scarce underground water.
Encasing and supporting agricultural research and extension services as well as
improving animal endowment.
Expanding establishment of dams and water reservoirs to maximize water use in
irrigation.
Expanding provision of easy terms credit to small farmers, fishermen, and cooperatives.
Upgrading and expanding fishing infrastructures including fishing technologies, storage,
transportation, marketing, and quality control laboratories.
Encouraging fish exports.
(e) Industrial Policy
The industrial sector consists of two subsectors: the mining and extraction sector and the
manufacturing sector. The policy aims at:
1.
Encouraging oil and minerals exploration in order to brine into exploitation new flicks of
crude oil and some minerals such as gold, copper, iron, silver. zink, and others along with
extracting marble and granite stones.
2.
Insetting in natural gas utilization in electric power generation and household uses.
3.
Expanding physical infrastructure required stimulating industrial investment means,
particularly, electric power, water supply, road network, communication facilities, and
others.
4.
Providing incentives and priorities to industrial investments -projects that use local raw
and intermediate inputs and characterized by labour intensive technology.
5.
establishing industrial zones to facilitate locating of small and medium scale industries
and micro projects supported by required utilities.
.
6.
Provision of easy terms credits for small and medium scale enterprises to create more job
opportunities and to help poverty alleviation efforts.
7.
Setting up strict specifications and quality controls to ensure competitive domestic
products.
8.
Promoting industrial product exports.
9.
Promoting investments in high- tech and informations based technologies.
51
(f) Tourism Policy
Yemen is considered as a touristic rich 'country with diversified touristic products
including historic, cultural, beaches, diving and health care tourism. To promote tourism
potential the following policy is adopted:
1.
Preparing and publishing a tourist map that shows the exciting and attracting points.
2.
Encouraging private sector to invest in tourism enterprises including hotels, resort means,
tourist agencies, and other services.
3.
Preserving tourist attraction and promoting tourism, both locally and abroad.
(g) Social Development
This broad sector includes health, education, technical and professional training, human
resource development, and safety net.
However, it is quite understood that achieving those goals and objectives is not easy task
or merely at hand. In fact, there are several challenges and constraints along the wav of the
goals and objectives. The main challenges could be briefly stated as follows:
1. Water Scarcity
Yemen is considered one of tire poorest countries in water resources in the world; water
Per Capita doesn't exceed 150 Cubic Meters, which is far below the international average of
7500 Cubic Meters.
2. High Population Growth Rate
Population growth in Yemen is once again, once of highest in the world. The annual
populations growth rate is 3.5% in 1999, which creates a high pressure on scarce resources that
hinders development potential.
3. Low Skills and Capacities of Human Resources
Human resources are characterized by low productivity, low participation in labour force
high dependency ratio of 349%, high illiteracy rate of about 47% of population, low school
enrolment of about 59% of school age children, and health service coverage of only 50% of the
population.
4. Lack of Sufficient Infrastructures
Infrastructure facilities in Yemen are still insufficient includin g electric power supply,
water supply network, roads and bridges, communication services, and others.
5. Low Per Capita Income and Low Saving Capacity
Per Capita income in Yemen is no more than 3=19 dollar, which is under poverty line;
thereby saving capacity is quite limited.
6. Increasing Dependency on Foreign Sector
Several macrocosmic indicters reflect increasing dependency of the economy on foreign
sector as oil production represents 31% of GDP, oil exports represents 95% of total exports,
52
and oil revenue contributes more than 60% of government revenues. In addition, developments
investments is almost dependent on loans and foreign assistance, meanwhile imports represent
almost 50% of GDP.
(h) Investment for the Next Decade (2001-2010)
Table (21) below shows the total required investment for the next decade (2001-2010), its
estimation based on the following indicators:
1.
2.
3.
4.
The exchange rate is YRl 165 = $1
The ratio of capital to GDP is estimated to be between " 4 to 5".
The GDP is expected to be 7000 Million dollars in 2000 (it was 6795 Million dollars in
1999)
The ratio of total local value of investment to the Gross Domestic Product in year 2000 is
about 20%, which results to an economic growth rate of about 4.25%, and since the
Program of Action for (2001-2010) aims to achieve yearly real economic growth rate
between 6.5-7.5%, the yearly total required investment as a percentage of the GDP is
depicted in table (21) below:
TABLE (21)
INVESTMENT PROGRAM FOR 2001-2010 (AS A PERCENTAGE OF GDP)
Year
Total
Expected
Inv.
(In million
$)
(%)
Source
Domestic
Saving
Source
Foreign
(FDI)
(%)
Source Foreign
(soft loans, grant,
and Concessional
multilateral
loans)
(%)
(%)
2001
1750
.25
1050
0.15
350.0
0.05
350
.05
2002
1837.5
.25
1102.5
0.15
367.5
0.05
367.5
.05
2003
2002
.26
1155
0.15
462.0
0.06
385
.05
2004
2080
.26
1200
0.15
480.0
0.06
400
.05
2005
2295
.27
1360
0.16
510.0
0.06
425
.05
2006
2430
.27
1440
0.16
540.0
0.06
450
.05
2007
2660
.28
1520
0.16
565.0
0.07
475
.05
2008
2800
.28
1600
0.16
700.0
0.07
500
.05
2009
3045
.29
1785
0.17
735.0
0.07
525
.05
2010
3300
.30
1980
0.18
770.0
0.07
550
.05
Total
24199.5
-
14192.5
-
5579.5
-
4427.5
-
The total expected investments during 2001 to 2010 is estimated to be $24199.5 Millions, about
$ 14192.5 Millions is expected to be financed from Domestic Saving, $ 5579.5 Millions from Foreign
Direct Investment (FDI) and the rest $ 4427.5 Millions is expected to be financed from foreign
resources as grants, soft loans, and concessional multilateral loans.
53